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Bankruptcy Codes, Liquidation Timing, and Debt Valuation

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  • Max Bruche

    () (CEMFI, Centro de Estudios Monetarios y Financieros)

Abstract

This paper derives closed-form solutions for values of debt and equity in a continuoustime structural model in which the demands of creditors to be repaid cause a firm to be put into bankruptcy. This allows discussing the effect of creditor coordination in recovering money on the values of debt, equity, and the firm. The effects of features of bankruptcy codes that influence creditor coordination such as automatic stays and preference law are also considered. In the model, a lack of creditor coordination reduces the value of debt, but can increase the value of the firm. Automatic stays and preference law increase the value of equity, but can decrease the value of debt and the firm.

Suggested Citation

  • Max Bruche, 2009. "Bankruptcy Codes, Liquidation Timing, and Debt Valuation," Working Papers wp2009_0902, CEMFI.
  • Handle: RePEc:cmf:wpaper:wp2009_0902
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    References listed on IDEAS

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    Cited by:

    1. Yusuke Kamishiro & Roberto Serrano, 2011. "Equilibrium Blocking in Large Quasilinear Economies," Mathematics of Operations Research, INFORMS, vol. 36(3), pages 552-567, August.
    2. Roberto Serrano, 2009. "On Watson's Non-Forcing Contracts and Renegotiation," Economics Bulletin, AccessEcon, vol. 29(3), pages 2350-2360.
    3. Manuel Arellano & Lars Peter Hansen & Enrique Sentana, 2009. "Underidentification? (Resumen)," Working Papers wp2009_0905, CEMFI.
    4. Serrano, Roberto & Vohra, Rajiv, 2010. "Multiplicity of mixed equilibria in mechanisms: A unified approach to exact and approximate implementation," Journal of Mathematical Economics, Elsevier, vol. 46(5), pages 775-785, September.

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