Loan Payment and Renegotiation: The Role of the Liquidation Value

• Autorzy: Andrzej Paliński
• Języki publikacji: EN

Abstrakty

EN

This paper analyzes a model of bank loan repayment as the signalling game. The model shows that under asymmetric information a borrower reaches for renegotiation and debt forgiveness to a greater extent than is required by the return of the venture financed with the loan. In the equilibrium, the borrower pays the lesser of: an amount equal to the liquidation value or the amount of payment specified in the credit agreement. The loan contract induces strategic default and leniency of the bank on the equilibrium path. To offset the impact of the renegotiation options, the interest rate specified in the credit agreement should ex ante take into account the liquidation value of the borrower's assets. The paper also proposes an example of the utilisation of our theoretical model and the Monte Carlo method to determine the loan interest rate for a commercial loan.(original abstract)

Słowa kluczowe

EN

Bank loans; Credit agreement; Interest rate; Game theory

PL

Pożyczki bankowe; Umowa kredytowa; Stopa procentowa; Teoria gier

• Czasopismo: Argumenta Oeconomica
• Rocznik: 2018
• Numer: nr 1 (40)
• Strony: 225--252

Twórcy

autor

Andrzej Paliński

• AGH University of Science and Technology Kraków, Poland

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Identyfikatory

DOI

10.15611/aoe.2018.1.10