Relying on the Information of Others: Debt Rescheduling with Multiple Lenders

Can inertia in terminating unsuccessful loans be due to the mul- tiplicity of lenders in loan arrangements? Can a lender reschedule, betting against his odds? We show that fear of being last in a liqui- dation run prevents the aggregation of the lenders'information about the value of continuation. Private information in the form of bad but coarse news, that would prompt foreclosure on its own, will in- stead lead to rescheduling. The gamble is that other lenders may have sharper information. At equilibrium, rescheduling occurs even if all lenders received bad news. This is ine¢ cient (increasing the cost of capital) compared to perfect information sharing. However, from a social point of view, barren information sharing, the equilibrium does not exhibit excessive reliance on the information of others.