Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5102222 | The North American Journal of Economics and Finance | 2017 | 12 Pages |
Abstract
We present a theory for the puzzling issue regarding why certain firms in financial distress, prefer a costlier formal bankruptcy procedure over direct renegotiations. We show that claimholders' heterogeneous beliefs about the results of a formal plan and about judicial discretion may lead to such a preference. The proposed model predicts which resolution would be chosen under claimholders' beliefs about the determinants driving the outcome of a formal procedure, such as the extent to which firm value is affected by bankruptcy, the likelihood of deviation from the absolute priority rule, and the probability of the court adopting a reorganization plan.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Pascal François, Alon Raviv,