The Impact of Bank Health on Coordination among Creditors

Kenta Toyofuku

College of Economics, Nihon University, Tokyo, Japan.

DOI: 10.4236/tel.[phone]                

Abstract

We investigate how the health of a relationship bank impacts upon coordination among creditors and how it affects the firm’s behavior. We show that if the relationship bank is healthy, creditors coordinate each other and the firm takes an efficient action but if it becomes financially distressed, a coordination problem arises ex post and the inefficient liquidation of the firm’s projects may occur. This coordination failure, in turn, increases the interest payments ex ante so that the firm is more likely to choose an inefficient action.

Keywords

Coordination Failure; Heterogeneous Bank Financing; Global Game

Conflicts of Interest

The authors declare no conflicts of interest.

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