Creditor passivity: the effects of bank competition and institutions on the strategic use of bankruptcy filings

Arbeitspapier

Why do banks remain passive? In a model of bank-firm relationship we study the trade-off a bank faces when having defaulting firms declared bankrupt. First, the bank receives a payoff if a firm is liquidated. Second, it provides information about a firm's type to its competitors. Thereby, asymmetric information between banks is reduced and bank competition intensifies. We find that the better the institutions and the more competitive the banking sector, the higher the bank's incentive to bankrupt defaulting firms. This makes information between banks less asymmetric and thus leads to lower interest rates and less credit rationing.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 2179

Classification and Topics

• Classification: Wirtschaft ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Bankruptcy; Liquidation ; Basic Areas of Law: General (Constitutional Law) ; Asymmetric and Private Information; Mechanism Design
• Subject: creditor passivity ; bank competition ; information sharing ; institutions ; bankruptcy ; relationship banking ; Konkurs ; Informationsverbreitung ; Gläubiger ; Institutionelle Infrastruktur ; Unvollkommener Wettbewerb ; Bank

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Hainz, Christa
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2007

Further information

• Handle: http://hdl.handle.net/10419/26223
• Last update: 14.08.20252025, 4:02 AM CEST