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Last Resort Gambles, Risky Debt and Liquidation Policy Author info | Abstract | Publisher info | Download info | Related research | Statistics Elettra Agliardi () (University of Bologna and The Rimini Centre for Economics Analysis, Italy.)
Rainer Andergassen () (University of Bologna)
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This paper develops a real option model in which the interaction between debt, liquidation policy and risky investments is studied. We consider a manager who owns the firm and faces the opportunity to invest in risky pro jects which may bo ost current profits at the cost of bankruptcy if they turn out to be unsuccessful. These investments are "last resort gambles" in the sense that, if successful, they save the company from insolvency, while, if unsuccessful, they make liquidation unavoidable. We show that last resort gamble strategies delay liquidation. We study how the liquidation and the last resort gamble strategies are affected by the firmÕs capital structure.
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Paper provided by Rimini Centre for Economic Analysis in its series Working Paper Series with number
31-07.
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Date of creation: Jul 2007Date of revision:
Jul 2007Handle: RePEc:rim:rimwps:31-07Contact details of provider: Web page: http://www.rcfea.org More information through EDIRC
For technical questions regarding this item, or to correct its listing, contact: (Francesco Billi).
Keywords: Last resort gambles ; risky investments ; liquidation policy ; real options. ; Other versions of this item:
Find related papers by JEL classification: G3 - Financial Economics - - Corporate Finance and Governance G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
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