Reputation, Renegotiation, and the Choice between Bank Loans and Publicly Traded Debt

Clicks: 1
ID: 307196
1994
Free PDF
Article Quality & Performance Metrics
Overall Quality
Not rated
Combines reader engagement with the AI quality analysis. This article has not been analysed, so there is no overall score — reader engagement is measured and shown alongside.
AI Quality Assessment
Not analyzed
Readership in this journal

Ranked #190 of 192 articles by views in review of financial studies

Most read Least read

Bar heights use a square-root scale. Only the 120 most-read articles are drawn; the journal has 192 in total.

Mint this article as an NFT
Not yet minted

Create a permanent, verifiable on-chain record of this article on the Scimatic Network. The NFT is held in your Journament account, and you can withdraw it to your own wallet at any time.

5 SUSD one-off · no wallet required
Sign in to mint
Abstract
We model firms' choice between bank loans and publicly traded debt, allowing for debt renegotiation in the event of financial distress. Entrepreneurs, with private information about their probability of financial distress, borrow from banks (multiperiod players) or issue bonds to implement projects. If a firm is in financial distress, lenders devote a certain amount of resources (unobservable to entrepreneurs) to evaluate whether to liquidate the firm or to renegotiate its debt. We demonstrate that banks' desire to acquire a reputation for making the 'right' renegotiation versus liquidation decision provides them an endogenous incentive to devote a larger amount of resources than bondholders toward such evaluations. In equilibrium, bank loans dominate bonds from the point of view of minimizing inefficient liquidation,. however, firms with a lower probability of financial distress choose bonds over bank loans.
Reference Key
openalex_W2161860268 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Thomas J. Chemmanur, Paolo Fulghieri
Journal review of financial studies
Year 1994
DOI
10.1093/rfs/7.3.475
URL
https://doi.org/10.1093/rfs/7.3.475
Keywords Keywords not found

Citations

No citations found. To add a citation, contact the admin at info@scimatic.org

Comments

No comments yet. Be the first to comment on this article.