This research investigates how legal sanctions prevailing under bankruptcy may impact on debt contracting and on investing decision. We model firms having the opportunity to engage (or not) faulty management. In case of default, the firms may escape costly bankruptcy by reaching a private...

We study conditions under which legal sanctions may lead to an efficient selection of heterogeneous investment projects. We consider a standard debt contract between a bank and a small firm (either profitable or not) : if financial distress occurs, an arbitration between private agreement and...

Recent financial crises and especially large corporate bankruptcies, have led bank managements and financial authorities to follow and monitor both financial and real sector risks, and to focus on firm failures. Bank of International Settlements, has therefore, taken the decision to include the...

In this paper we study firm dynamics and industry equilibrium when firms under financial distress face a non-trivial choice between alternative bankruptcy procedures. Given limited commitment and asymmetric information, financial contracts specify default, renegotiation and reorganization...

Le processus de défaillance d’une entreprise, lorsqu’il résulte d’une dégradation de ses performances économiques est affecté par les règles de partage qui prendront place en cas de liquidation. Il existe notamment , en cas de dégradation continue des résultats, des incitations...

This research investigates how bankruptcy law influences the design of debt contracts and the investment choice through the sanction of faulty managers. We model a lending relationship between a small firm and a monopolistic bank which decides the loan rate. The firm may perform asset...

This research investigates how bankruptcy law influences the design of debt contracts and the investment choice through the sanction of faulty managers. We model a lending relationship between a small firm and a monopolistic bank which decides the loan rate. The firm may perform asset...

This paper examines the phenomenon of management-initiated, court-supervised reorganization of companies in U.S. bankruptcy court. The proposed in-court persuasion mechanism reconciles excessive reorganizations of non-viable companies (and subsequent repeat failures) with management-initiated...