Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/337279 
Year of Publication: 
2024
Citation: 
[Journal:] Journal of Derivatives and Quantitative Studies: Seonmul yeon'gu (JDQS) [ISSN:] 2713-6647 [Volume:] 32 [Issue:] 3 [Year:] 2024 [Pages:] 182-199
Publisher: 
Emerald, Leeds
Abstract: 
This paper develops a debt-run model to study the effects of liquidity injections on debt markets in the presence of a renegotiation option. In the model, creditors decide when to withdraw their funding and equityholders can renegotiate the contract terms of debt. We show that when equityholders have a large bargaining power, liquidity injections into distressed firms can rather cause more aggressive runs from their creditors, hurting the debt value. This outcome occurs because equityholders can strategically utilize the renegotiation option as a bankruptcy threat, pushing down the debt value below the potential liquidation value of the firm. In such a scenario, a deterred default resulting from emergency capital injections could be detrimental to creditors.
Subjects: 
Bailout
Dynamic debt runs
Liquidity injection
Renegotiation
JEL: 
G01
G21
G33
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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