Koreli, Nika (2019) Essays in information economics. PhD thesis, University of Warwick.

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Abstract

1.1 Strategic default, investment and the resolution of financial
distress

In recent years, the U.S. experienced an increase in the share of default events that are resolved out-of-court, as well as a reduction in bankruptcy-related costs. This trend raises the question as to what drives the frequency with which defaults turn into bankruptcies. We propose a theory based on three pillars: first, bankruptcy is costlier than out-of-court restructuring; second, creditors cannot commit to take defaulting borrowers to court; third, firms have private information about the value of their assets, outside investors only learn them only upon bankruptcy. Creditor’s bargaining power upon default decreases with bankruptcy costs and it increases with the frequency of strategic default – that is, default by firms which could have honored their obligations. When bankruptcy costs decrease, creditors obtain higher recovery rates out-of-court and therefore firms have lower incentives to default strategically. As a result, bankruptcy can occur less frequently.

1.2 Communication Mechanisms in Competition

I examine how a market mediator can help market players to have an incentive compatible communication which leads to a more efficient market outcome. I introduce the mediator whose function is a collection of financial information from the players and sharing this information with other market players. The crucial assumption is that information disclosure to the mediator by the participants is voluntary, so there is no third party who forces the market players to disclose private information. Given that the mediator can commit to a reporting policy to the bidders, I characterise the information reporting policy that the mediator should adopt to minimize the probability of investment in unprofitable projects by the uninformed players. I show that manipulation of the first order beliefs of the uninformed player is not sufficient to extract information from the informed player. The main insight of the paper suggests that allowing the player who shared information to know the degree to which his information was shared with other participants will incentivise information disclosure.

Item Type:	Thesis or Dissertation (PhD)
Subjects:	H Social Sciences > HB Economic Theory
Library of Congress Subject Headings (LCSH):	Default (Finance), Bankruptcy, Mediation, Competition, Disclosure of information
Official Date:	August 2019
Dates:	Date Event August 2019 UNSPECIFIED
Institution:	University of Warwick
Theses Department:	Department of Economics
Thesis Type:	PhD
Publication Status:	Unpublished
Supervisor(s)/Advisor:	Polemarchakis, H. M. (Heraklis M.) ; Perry, Motty
Sponsors:	Economic and Social Research Council (Great Britain)
Format of File:	pdf
Extent:	102 leaves : charts
Language:	eng

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