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Capital structure and debt priority

Author

Listed:
  • Sami Attaoui

    (Pôle Finance Responsable - Rouen Business School - Rouen Business School)

  • Patrice Poncet

    (ESSEC Business School)

Abstract

In a simple structural model, we derive closed form solutions for the market values of a defaultable firm's debt and equity when debt has a heterogeneous priority structure - under the form of senior and junior bonds - and the absolute priority rule prevails. The firm is subject to liquidity and solvency risks and liquidation is immediate upon bankruptcy. We investigate the two-sided issue of optimal capital structure and optimal debt priority. We also examine the spread differential between senior and junior bonds

Suggested Citation

  • Sami Attaoui & Patrice Poncet, 2011. "Capital structure and debt priority," Post-Print hal-00756211, HAL.
    • Handle: RePEc:hal:journl:hal-00756211
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    Cited by:

    1. Attaoui, Sami & Poncet, Patrice, 2015. "Write-Down Bonds and Capital and Debt Structures," Journal of Corporate Finance, Elsevier, vol. 35(C), pages 97-119.
    2. Sami Attaoui, 2016. "Capital Structure And Tax Convexity When The Maturity Of Debt Is Finite," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 19(01), pages 1-20, February.
    3. Quratulain Zafar & Winai Wongsurawat & David Camino, 2019. "The determinants of leverage decisions: Evidence from Asian emerging markets," Cogent Economics & Finance, Taylor & Francis Journals, vol. 7(1), pages 1598836-159, January.
    4. de La Bruslerie, Hubert & Gueguen, Simon, 2021. "Creditors’ holdup, releveraging and the setting of private appropriation in a control contract between shareholders," International Review of Law and Economics, Elsevier, vol. 68(C).
    5. de La Bruslerie, Hubert, 2016. "Does debt curb controlling shareholders' private benefits? Modelling in a contingent claim framework," Economic Modelling, Elsevier, vol. 58(C), pages 263-282.
    6. Liu, Liang-Chih & Dai, Tian-Shyr & Wang, Chuan-Ju, 2016. "Evaluating corporate bonds and analyzing claim holders’ decisions with complex debt structure," Journal of Banking & Finance, Elsevier, vol. 72(C), pages 151-174.
    7. Mirza, Nawazish & Rahat, Birjees & Naqvi, Bushra & Rizvi, Syed Kumail Abbas, 2023. "Impact of Covid-19 on corporate solvency and possible policy responses in the EU," The Quarterly Review of Economics and Finance, Elsevier, vol. 87(C), pages 181-190.

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