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Proceedings of the German Development Economics Conference, 2005 (Kiel) >
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http://hdl.handle.net/10419/19811
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| Title: | | Quality of Institutions, Credit Markets and Bankruptcy  |
| Authors: | | Hainz, Christa |
| Issue Date: | | 2005 |
| Series/Report no.: | | Proceedings of the German Development Economics Conference, Kiel 2005 / Verein für Socialpolitik, Research Committee Development Economics 18 |
| 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: | | G33 K10 G21 D82 |
| Document Type: | | Conference Paper |
| Appears in Collections: | | Proceedings of the German Development Economics Conference, 2005 (Kiel)
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