Email: N dot Koreli at warwick dot ac dot uk
Advice and feedback hours:
Friday 4.00-5.30 P.M. by appointment (via email).
- Information Economics: Information Design in Auctions
- Corporate Finance: Security Design
Research Fellow - Centre for Research in Economic Theory and its Applications (CRETA)
I examine how a market mediator can help to disseminate financial information among market players using only a communication channel. I introduce a mediator whose function is a collection of financial information from the players and sharing of this information with other market players. The crucial assumption is that information disclosure to the mediator by the participants is voluntary. Given that the mediator has a commitment power to use reporting policies, the paper finds the information reporting policy that the mediator should adopt in order to minimise the probability of inefficient investments by less informed market players. I show that a manipulation of the first order beliefs of less informed players is not sufficient to extract information from more informed players. The main insight of the paper suggests that allowing a player who shares information to know the degree to which his information was shared with other participants incentivises information disclosure.
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 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.
- EC333: Topics in Financial Economics: Theories and International Finance
- EC334: Topics in Financial Economics: Corporate Finance and Markets