Back to Search
Start Over
Renegotiable debt, liquidity injections and financial instability
- Source :
- Seonmul yeongu, Vol 32, Iss 3, Pp 182-199 (2024)
- Publication Year :
- 2024
- Publisher :
- Emerald Publishing, 2024.
-
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.
Details
- Language :
- English
- ISSN :
- 27136647 and 1229988X
- Volume :
- 32
- Issue :
- 3
- Database :
- Directory of Open Access Journals
- Journal :
- Seonmul yeongu
- Publication Type :
- Academic Journal
- Accession number :
- edsdoj.90e99d96a3ea4adaa6f9eacd5750cadc
- Document Type :
- article
- Full Text :
- https://doi.org/10.1108/JDQS-01-2024-0003/full/pdf