The Design of Corporate Debt Structure and Bankruptcy
AbstractThis article integrates the problem of designing corporate bankruptcy rules into a theory of optimal debt structure. We show that, in an optimal contracting framework with imperfect renegotiation, having multiple creditors increases a firm's debt capacity while increasing its incentives to default strategically. The optimal debt contract gives creditors claims that are jointly inconsistent in case of default. Bankruptcy rules are therefore a necessary part of the overall financing contract, to make claims consistent and to prevent a value-reducing run for the assets of the firm. We characterize these rules, with predictions about the allocation of security rights, the right to trigger bankruptcy, and the symmetry of treatment of creditors in default. The Author 2010. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: firstname.lastname@example.org., Oxford University Press.
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Bibliographic InfoArticle provided by Society for Financial Studies in its journal The Review of Financial Studies.
Volume (Year): 23 (2010)
Issue (Month): 7 (July)
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- Antoine Martin & David Skeie & Ernst-Ludig von Thadden, 2011.
FMG Discussion Papers
dp687, Financial Markets Group.
- Antoine Martin & David Skeie & Ernst-Ludwig von Thadden, 2010. "Repo runs," Staff Reports 444, Federal Reserve Bank of New York.
- Martin, A. & Skeie, D. & Thadden, E.L. von, 2010. "Repo Runs," Discussion Paper 2010-44S, Tilburg University, Center for Economic Research.
- Martin, Antoine & Skeie, David & Thadden, Ernst-Ludwig von, 2013. "Repo Runs," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 448, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- Martin, Antoine & Skeie, David & Thadden, Ernst-Ludwig von, 2013.
"The Fragility of Short-Term Secured Funding Markets,"
Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems
449, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- Martin, Antoine & Skeie, David & von Thadden, Ernst-Ludwig, 2014. "The fragility of short-term secured funding markets," Journal of Economic Theory, Elsevier, vol. 149(C), pages 15-42.
- Antoine Martin & David Skeie & Ernst-Ludwig von Thadden, 2013. "The fragility of short-term secured funding markets," Staff Reports 630, Federal Reserve Bank of New York.
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