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dc.contributor.authorGALE, Douglas
dc.contributor.authorGOTTARDI, Piero
dc.date.accessioned2009-10-20T13:53:23Z
dc.date.available2009-10-20T13:53:23Z
dc.date.issued2009
dc.identifier.issn1725-6704
dc.identifier.urihttp://hdl.handle.net/1814/12695
dc.description.abstractWe study a competitive model in which market incompleteness implies that debt-financed firms may default in some states of nature and default may lead to the sale of the firms’ assets at fire sale prices when markets are illiquid. This incompleteness is the only friction in the model and the only cost of default. The anticipation of such losses alone may distort .rms.investment decisions. We characterize the conditions under which fire sales occur in equilibrium and their consequences on .rms.investment decisions. We also show that endogenous financial crises may arise in this environment, with asset prices collapsing as a result of pure self-fulfilling beliefs. Finally, we examine alternative interventions to restore the efficiency of equilibria.en
dc.format.mimetypeapplication/pdf
dc.language.isoenen
dc.relation.ispartofseriesEUI ECOen
dc.relation.ispartofseries2009/38en
dc.rightsinfo:eu-repo/semantics/openAccess
dc.subjectilliquid marketsen
dc.subjectdefaulten
dc.subjectincomplete marketsen
dc.subjectprice distortionsen
dc.subjectinefficient investmenten
dc.subjectD5en
dc.subjectD8en
dc.subjectG1en
dc.subjectG33en
dc.titleIlliquidity and Under-Valuation of Firmsen
dc.typeWorking Paperen
dc.neeo.contributorGALE|Douglas|aut|
dc.neeo.contributorGOTTARDI|Piero|aut|EUI70004
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