Implications of Debt Renegotiation for Optimal Bank Policy and Firm Behavior

This paper analyzes the problems associated with the renegotiation of debt contracts involving a bank (the lender) and a firm (the borrower) when the latter is operated by a risk averse manager. Firms undertake risky projects with loan capital borrowed from the bank. When a firm cannot pay off a loan it is technically bankrupt. Both the borrower and the lender may however experience a Pareto-improvement in their positions by renegotiating the loan. By renegotiating the terms of the debt the financially distressed firm can avoid the stigmatization of bankruptcy and the bank can avoid the costs of seizing the borrower's assets. However, our main finding is that, from the bank's point of view, renegotiating as a policy of recovering loan payments may be inefficient in practice because of false bankruptcy claims and moral hazard problems associated with exposure of the borrowing firm to the risk of default. We present a solution to the false bankruptcy claim problem that involves a mixe d strategy between asset seizure by the bank and debt renegotiation.     

FACTORS AFFECTING FEMALE EMPLOYMENT IN MALE‐DOMINATED OCCUPATIONS: EVIDENCE FROM THE 1990 AND 2000 CENSUS DATA

This article investigates the effects of age, marital status, number of children, and education on the probability of female presence in traditionally male‐dominated occupations using the PUMS 1990 and PUMS 2000 data. The results indicate that being married with husband present decreases the probability of female presence in traditionally male‐dominated occupations, whereas college education has changed from having a positive effect in the 1990 data to a negative effect in the 2000 data. The analysis also finds that there are significant regional variations with regard to the effects of these factors. (JEL J71, J31)