| Author: | Anderson, M. H. |
| Title: | Asset liquidity, moral hazard, and bank loan rescheduling |
| Journal: | Review of quantitative finance and accounting
1999 : NOV, VOL. 13:3, p. 227-247 |
| Index terms: | Liquidation Bank lending Assets Moral hazard Mathematical models Expropriation |
| Freeterms: | Loan rescheduling Financial distress |
| Language: | eng |
| Abstract: | The moral hazard problems facing a lender are well-known. We analyze the bank's decision to reschedule or to foreclose on a loan in default and the borrower's decision to divert lender-financed assets to personal use, i.e., to consume the assets. Lenders might be more willing to renegotiate credit contracts, rather than to foreclose, if they believed borrowers were not going to engage in such opportunistic behaviour. Both parties may be better off if they could commit to taking mutually beneficial actions. Our paper studies the equilibrium when such a commitment is not possible. |
SCIMA