Quality of Institutions, Credit Markets and Bankruptcy

Konferenzbeitrag

The number of firm bankruptcies is surprisingly low in economies with poor institutions. We study a model of bank-firm relationship and show that the bank?s decision to liquidate bad firms has two opposing effects. First, the bank receives a payoff if a firm is liquidated. Second, it loses the rent from incumbent customers that is due to its informational advantage. We show that institutions must improve significantly in order to yield a stable equilibrium in which the optimal number of firms is liquidated. There is also a range where improving institutions may decrease the number of bad firms liquidated.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Proceedings of the German Development Economics Conference, Kiel 2005 ; No. 18

Classification and Topics

• Classification: Wirtschaft ; Bankruptcy; Liquidation ; Basic Areas of Law: General (Constitutional Law) ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Asymmetric and Private Information; Mechanism Design
• Subject: Credit markets ; institutions ; bank competition ; information sharing ; bankruptcy ; relationship banking

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Hainz, Christa
• Event: Veröffentlichung
• (who): Verein für Socialpolitik, Ausschuss für Entwicklungsländer
• (where): Hannover
• (when): 2005

Further information

• Handle: http://hdl.handle.net/10419/19811
• Last update: 10.03.2025, 11:42 AM CET