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Conflicts in Bankruptcy and the Sequence of Debt Issues

Author

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  • Abraham (Avri) Ravid, S.
  • Sverdlove, Ronald
  • Bris, Arturo
  • Coiculescu, Gabriela

Abstract

This paper investigates the optimal sequencing of debt issues. Our theoretical model suggests that once firms issue debt with one level of seniority, they may have an incentive to alternate seniorities, because of violations of the priced absolute priority rule (APR). When we introduce explicit costs of class conflict, the model yields cases of alternating seniorities and other cases in which firms issue only one class of debt. The implications of the model are consistent with the observed regularities in a large database of debt issues. We test several other implications of our model as well.

Suggested Citation

  • Abraham (Avri) Ravid, S. & Sverdlove, Ronald & Bris, Arturo & Coiculescu, Gabriela, 2015. "Conflicts in Bankruptcy and the Sequence of Debt Issues," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 50(6), pages 1353-1388, December.
    • Handle: RePEc:cup:jfinqa:v:50:y:2015:i:06:p:1353-1388_00
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    Cited by:

    1. Dudley, Evan & Yin, Qie Ellie, 2018. "Financial distress, refinancing, and debt structure," Journal of Banking & Finance, Elsevier, vol. 94(C), pages 185-207.

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