KAIST Associate Professor’s Paper Received Best Paper Award from the US-Korea Finance Association2013-01-02Hit:5506
KAIST Associate Professor’s Paper Received Best Paper Award from the US-Korea Finance Association
<Liquidity Crisis Contagion Phenomenon Between The Two Companies>
Oh, Dong-Chul, Associate Professor at KAIST, received the Best Paper Award from the US-Korea Finance Association. His paper theoretically analyzes the phenomenon of a company"s liquidity crisis transferring to other companies when bond investors realize other creditors’ risk-averseness.
In the theoretical model, the paper assumes that there are two types of bond investors with incomplete information as to each company’s plan to invest funds into two companies whose businesses are unrelated. Specifically, the two types of bond investors are assumed to face a cooperative game as co-creditors. Through this cooperative game, a bond investor can recognize the other bond investor’s risk-averseness. Based on this information, the bond investor is assumed to decide whether to give funds consistently or to withdraw loans.
Under this circumstance, a bond investor knowing the fact that the other bond investor has a higher risk-averseness because of the company’s liquidity crisis tends to withdraw loans more actively. Such action by bond investors increases the possibility of the other company’s liquidity crisis. Through this study, if the crisis occurs in a company with a low possibility of a liquidity crisis, the liquidity crisis is more likely to be transferred to other company.