Liquidity and Liquidation
The manager of a firm that is selling an illiquid asset has discretion as to the sale price: if he chooses a high (low) selling price, early sale is unlikely (likely). If the manager has the option to default on the debt that is collaterized by the illiquid asset, the optimal selling price depends on whether the manager acts in the interest of the owners or the creditors. We model the former case. In the preferred equilibrium, the owner will always offer the illiquid asset for sale at a strictly higher price than he paid, and he will always default if he fails to sell. As a result, the illiquid asset changes hands at successively higher prices; the price inflation terminates upon the first failure to sell, which results in a default chain.
(This abstract was borrowed from another version of this item.)
If 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 31 (2007)
Issue (Month): 3 (June)
|Contact details of provider:|| Web page: http://link.springer.de/link/service/journals/00199/index.htm |
|Order Information:||Web: http://link.springer.de/orders.htm|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Haugen, Robert A & Senbet, Lemma W, 1978. "The Insignificance of Bankruptcy Costs to the Theory of Optimal Capital Structure," Journal of Finance, American Finance Association, vol. 33(2), pages 383-93, May.
- Ko Wang & Leslie Young & Yuqing Zhou, 2002. "Nondiscriminating Foreclosure and Voluntary Liquidating Costs," Review of Financial Studies, Society for Financial Studies, vol. 15(3), pages 959-985.
- John G. Riley & Richard Zeckhauser, 1980. "Optimal Selling Strategies:," UCLA Economics Working Papers 180, UCLA Department of Economics.
- Milgrom, Paul & Shannon, Chris, 1994.
"Monotone Comparative Statics,"
Econometric Society, vol. 62(1), pages 157-80, January.
- Shleifer, Andrei & Vishny, Robert W, 1992. " Liquidation Values and Debt Capacity: A Market Equilibrium Approach," Journal of Finance, American Finance Association, vol. 47(4), pages 1343-66, September.
- Krainer, John, 2001. "A Theory of Liquidity in Residential Real Estate Markets," Journal of Urban Economics, Elsevier, vol. 49(1), pages 32-53, January.
When requesting a correction, please mention this item's handle: RePEc:spr:joecth:v:31:y:2007:i:3:p:553-572. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn)or (Christopher F Baum)
If references are entirely missing, you can add them using this form.