A THEORY OF DEBT DISORGANIZATION

Abstract

Journal of Restructuring FinanceVol. 01, No. 01, pp. 1-11 (2004) ARTICLESNo AccessA THEORY OF DEBT DISORGANIZATIONKEIICHIRO KOBAYASHIKEIICHIRO KOBAYASHIResearch Institute of Economy, Trade and Industry, Japan Search for more papers by this author https://doi.org/10.1142/S0219869X04000020Cited by:5 PreviousNext AboutSectionsPDF/EPUB ToolsAdd to favoritesDownload CitationsTrack CitationsRecommend to Library ShareShare onFacebookTwitterLinked InRedditEmail AbstractThere were three anomalies in Japan in the 1990s: low output growth, declining asset prices, and widespread rollover of bad loans. In this paper, a model of multiple equilibria is presented in which these three anomalies emerge when too many firms become insolvent simultaneously as a result of a macroeconomic shock, such as a collapse of an asset-price bubble. A key factor is the role of debt contract as a commitment device for a debtor. Once a bad debt is rolled over, the debtor firm's commitment becomes untrustworthy, and the transactions among firms are disorganized. It is also shown that banks rationally roll over bad loans if too many insolvencies occur simultaneously.Keywords:Non-performing loanszombie companiescoordination failuredivision of laborJEL Classification: D21JEL Classification: G12JEL Classification: G20JEL Classification: G33 References G. S. Becker and K. M. Murphy, Quarterly Journal of Economics 107(4), 1137 (1992), DOI: 10.2307/2118383. Crossref, Google ScholarE. Berglöf and G. Roland, European Economic Review 41, 807 (1997). Crossref, Google ScholarB. S. Bernanke and M. Gertler, American Economic Review 79, 14 (1989). Google ScholarO. Blanchard and M. Kremer, Quarterly Journal of Economics 112(4), 1091 (1997), DOI: 10.1162/003355300555439. Crossref, Google Scholar R. J. Caballero , T. Hoshi and A. K. Kashyap , Zombie lending and depressed restructuring in Japan ( Mimeo , 2003 ) . Google ScholarD. Gale and M. Hellwig, Review of Economic Studies 52(4), 647 (1985). Crossref, Google ScholarN. Kiyotaki and J. Moore, Journal of Political Economy 105, 211 (1997), DOI: 10.1086/262072. Crossref, Google Scholar Kobayashi, K and M Inaba (2003). Debt disorganization in Japan. Japan and the World Economy (forthcoming) . Google Scholar Mitchell, J (1998). Strategic creditor passivity, regulation and bank Bailouts. CEPR Discussion Paper 1780, Centre for Economic Policy Research . Google Scholar Smith, A (1776). An Inquiry into the Nature and Causes of the Wealth of Nations . Google Scholar FiguresReferencesRelatedDetailsCited By 5Incident Management Process Capability: A Simulation StudyGoutam Kumar Kundu, B. Murali Manohar and Jayachandra Bairi1 Jan 2012LEAPCON: Simulation of Lean Construction of High-Rise Apartment BuildingsR. Sacks, A. Esquenazi and M. Goldin1 Jul 2007 | Journal of Construction Engineering and Management, Vol. 133, No. 7Evaluating the effect of construction process characteristics to the applicability of lean principlesJay Yang and Abdulsalam A. Al‐Sudairi23 Jan 2007 | Construction Innovation, Vol. 7, No. 1Payment uncertainty, the division of labor, and productivity declines in great depressionsKeiichiro Kobayashi1 Oct 2006 | Review of Economic Dynamics, Vol. 9, No. 4Debt disorganization in JapanKeiichiro Kobayashi and Masaru Inaba1 Apr 2005 | Japan and the World Economy, Vol. 17, No. 2 Recommended Vol. 01, No. 01 Metrics History KeywordsNon-performing loanszombie companiescoordination failuredivision of laborJEL Classification: D21JEL Classification: G12JEL Classification: G20JEL Classification: G33PDF download