An Incomplete Contracts Approach to Corporate Bankruptcy
AbstractThis paper integrates the problem of designing corporate bankruptcy rules into a theory of optimal debt structure. We show that, in an incomplete contract 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, therefore, are a necessary part of the overall financing contract, to make claims consisitent and to prevent a value reducing run for the assets of the firm. Furthermore, a too unequal allocation of security rights is not optimal, and creditors are not treated asymmetrically in default under the optimal contract.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Université de Lausanne, Faculté des HEC, DEEP in its series Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) with number 00.12.
Length: 32 pages
Date of creation: Apr 2000
Date of revision: Apr 2002
Contact details of provider:
Postal: Université de Lausanne, Faculté des HEC, DEEP, Internef, CH-1015 Lausanne
Phone: ++41 21 692.33.64
Fax: ++41 21 692.33.05
Web page: http://www.hec.unil.ch/deep/publications/cahiers/series
More information through EDIRC
bankruptcy; debt structure; contracts;
Find related papers by JEL classification:
- G3 - Financial Economics - - Corporate Finance and Governance
- K2 - Law and Economics - - Regulation and Business Law
This paper has been announced in the following NEP Reports:
- NEP-ALL-2000-09-18 (All new papers)
- NEP-CFN-2000-09-18 (Corporate Finance)
- NEP-FIN-2000-09-18 (Finance)
- NEP-IND-2000-09-18 (Industrial Organization)
- NEP-LAW-2000-09-18 (Law & Economics)
- NEP-MIC-2000-09-18 (Microeconomics)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Itzhak Gilboa & David Schmeidler, 2002.
"Inductive Inference: An Axiomatic Approach,"
Levine's Working Paper Archive
391749000000000544, David K. Levine.
- Gilboa, I. & Schmeidler, D., 2001. "Inductive Inference: An Axiomatic Approach," Papers 2001-19, Tel Aviv.
- Gilboa, I. & Schmeidler, D., 1999. "Inductive Inference: an Axiomatic Approach," Papers 29-99, Tel Aviv.
- Itzhak Gilboa & David Schmeidler, 2002. "Inductive Inference: An Axiomatic Approach," NajEcon Working Paper Reviews 391749000000000544, www.najecon.org.
- Itzhak Gilboa & David Schmeidler, 2001. "Inductive Inference: An Axiomatic Approach," Cowles Foundation Discussion Papers 1339, Cowles Foundation for Research in Economics, Yale University.
- Gerhard Illing, 2000. "Bailing in the private sector," Intereconomics: Review of European Economic Policy, Springer, vol. 35(2), pages 64-71, March.
- Issam Hallak, 2004. "Why Borrowers Pay Premiums to Larger Lenders: Empirical Evidence from Sovereign Syndicated Loans," CSEF Working Papers 124, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
- Arturo Bris & Ivo Welch, 2005.
"The Optimal Concentration of Creditors,"
Journal of Finance,
American Finance Association, vol. 60(5), pages 2193-2212, October.
- Ivo Welch & Bris, Arturo, 2001. "The Optimal Concentration of Creditors," Cowles Foundation Discussion Papers 1338, Cowles Foundation for Research in Economics, Yale University, revised Jan 2002.
- Arturo Bris & Ivo Welch, 2001. "The Optimal Concentration of Creditors," NBER Working Papers 8652, National Bureau of Economic Research, Inc.
- Ivo Welch & Arturo Bris, 2001. "The Optimal Concentration of Creditors," Yale School of Management Working Papers ysm248, Yale School of Management, revised 01 Apr 2004.
- Antje Brunner & Jan Pieter Krahnen, 2008.
"Multiple Lenders and Corporate Distress: Evidence on Debt Restructuring,"
Review of Economic Studies,
Oxford University Press, vol. 75(2), pages 415-442.
- Brunner, Antje & Krahnen, Jan Pieter, 2004. "Multiple Lenders and Corporate Distress: Evidence on Debt Restructuring," CEPR Discussion Papers 4287, C.E.P.R. Discussion Papers.
- Brunner, Antje & Krahnen, Jan Pieter, 2006. "Multiple lenders and corporate distress: Evidence on debt restructuring," CFS Working Paper Series 2001/04, Center for Financial Studies (CFS).
- Hainz, Christa, 2004.
"Quality of Institutions, Credit Markets and Bankruptcy,"
Discussion Papers in Economics
388, University of Munich, Department of Economics.
- Hainz, Christa, 2005. "Quality of Institutions, Credit Markets and Bankruptcy," Proceedings of the German Development Economics Conference, Kiel 2005 18, Verein für Socialpolitik, Research Committee Development Economics.
- Christa Hainz, 2004. "Quality of Institutions, Credit Markets and Bankruptcy," CESifo Working Paper Series 1362, CESifo Group Munich.
- Christa Hainz, 2005. "Quality of Institutions, Credit Markets and Bankruptcy," William Davidson Institute Working Papers Series wp745, William Davidson Institute at the University of Michigan.
- Hans K. Hvide & Todd Kaplan, 2003.
"A Theory of Capital Structure with Strategic Defaults and Priority Violations,"
- Hans K. Hvide & Tore Leite, 2003. "A Theory of Capital Structure with Strategic Defaults and Priority Violations," Finance 0311003, EconWPA.
- Kenneth Ayotte & Hayong Yun, . "Matching Bankruptcy Laws to Legal Environments," American Law & Economics Association Annual Meetings 1018, American Law & Economics Association.
- Ulrich Hege & Pierre Mella-Barral, 2005.
"Repeated Dilution of Diffusely Held Debt,"
The Journal of Business,
University of Chicago Press, vol. 78(3), pages 737-786, May.
- Daniela Fabbri, 2001. "The Legal Enforcement of Credit Contracts and the Level of Investment," CSEF Working Papers 57, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Claudine Delapierre Saudan).
If references are entirely missing, you can add them using this form.