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ifo Institut – Leibniz-Institut für Wirtschaftsforschung an der Universität München >
CESifo Working Papers, CESifo Group Munich >
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http://hdl.handle.net/10419/18725
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| Title: | | Quality of institutions, credit markets and bankruptcy  |
| Authors: | | Hainz, Christa |
| Issue Date: | | 2004 |
| Series/Report no.: | | CESifo working papers 1362 |
| Abstract: | | 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. |
| Subjects: | | credit markets institutions bank competition information sharing bankruptcy relationship banking |
| JEL: | | K10 G33 G21 D82 |
| Document Type: | | Working Paper |
| Appears in Collections: | | CESifo Working Papers, CESifo Group Munich
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