| Paper Number | KCB-WP-2022-024 |
|---|---|
| Title | A Large Creditor in Contagious Liquidity Crises |
| Title(Other) | |
| Author | Frederick Dongchuhl Oh, Junghum Park |
| Publisher | KAIST College of Business |
| Abstract | This paper presents a contagious liquidity crises model for nonfinancial firms in which a large creditor influences the extent to which the contagion spreads across firms. We consider a sequential framework where two rollover games occur one after another. A liquidity crisis in one firm triggers a liquidity crisis in another firm through changes in the risk attitudes of creditors from the wealth effect. We show that the presence of a large creditor with a sufficient asset size reduces the contagion effect. Moreover, a concentration of a large creditor's loan portfolio towards the former firm increases the contagion effect. |
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