Liquidation values and the credibility of financial contract renegotiation
Subtitle: evidence from U.S. airlines
By: Efraim Benmelech, Nittai K. Bergman.
Contributors: Bergman, Nittai K.; National Bureau of Economic Research.
Series: NBER working paper series -- working paper 14059; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 14059.
Publisher: National Bureau of Economic Research
Published: 2008
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "How do liquidation values affect financial contract renegotiation? While the 'incomplete contracting' theory of financial contracting predicts that liquidation values determine the allocation of bargaining power between creditors and debtors, there is little empirical evidence on financial contract renegotiations and the role asset values play in such bargaining.  This paper attempts to fill this gap.  We develop an incomplete-contracting model of financial contract renegotiation and estimate it using data on the airline industry in the United States.  We find that airlines successfully renegotiate their lease obligations downwards when their financial position is sufficiently poor and when the liquidation value of their fleet is low.  Our results show that strategic renegotiation is common in the airline industry.  Moreover, the results emphasize the importance of the incomplete contracting perspective to real world financial contract renegotiation"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 7/11/2008.

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