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Game theoretic analysis of negotiations under bankruptcy

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  • Annabi, Amira
  • Breton, Michèle
  • François, Pascal

Abstract

We extend the contingent claims framework for the levered firm in explicitly modelling the resolution of financial distress under formal bankruptcy as a non-cooperative game between claimants under the supervision of the bankruptcy judge. The identity of the class of claimants proposing the first reorganization plan is found to be a key determinant of the time spent under bankruptcy, the likelihood of liquidation and the renegotiated value of claims. Our quantitative results confirm the economic intuition that a bankruptcy design must trade-off the initial priority of claims with the viability of reorganized firms.

Suggested Citation

  • Annabi, Amira & Breton, Michèle & François, Pascal, 2012. "Game theoretic analysis of negotiations under bankruptcy," European Journal of Operational Research, Elsevier, vol. 221(3), pages 603-613.
  • Handle: RePEc:eee:ejores:v:221:y:2012:i:3:p:603-613
    DOI: 10.1016/j.ejor.2012.04.002
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    References listed on IDEAS

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    Cited by:

    1. Ayadi, Mohamed A. & Ben-Ameur, Hatem & Fakhfakh, Tarek, 2016. "A dynamic program for valuing corporate securities," European Journal of Operational Research, Elsevier, vol. 249(2), pages 751-770.
    2. Lorentziadis, Panos L., 2014. "Bidding under auctioneer default risk," Omega, Elsevier, vol. 49(C), pages 123-133.

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