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Creditor Coordination, Liquidation Timing, and Debt Valuation

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  • Bruche, Max

Abstract

This paper derives closed-form solutions for values of debt and equity in a continuous-time structural model in which the demands of creditors to be repaid cause a firm to be put into bankruptcy. This allows discussion of the effect of creditor coordination in recovering money on the values of debt, equity, and the firm, as well as on optimal capital structure. The effects of features of bankruptcy codes that prevent coordination failures between creditors, such as automatic stays and preference law, are also considered. The model suggests that such features, while preventing coordination failures, can decrease welfare.

Suggested Citation

  • Bruche, Max, 2011. "Creditor Coordination, Liquidation Timing, and Debt Valuation," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 46(5), pages 1407-1436, October.
    • Handle: RePEc:cup:jfinqa:v:46:y:2011:i:05:p:1407-1436_00
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    Cited by:

    1. Dong Beom Choi, 2014. "Heterogeneity and Stability: Bolster the Strong, Not the Weak," The Review of Financial Studies, Society for Financial Studies, vol. 27(6), pages 1830-1867.
    2. Stef, Nicolae & Bissieux, Jean-Joachim, 2022. "Resolution of corporate insolvency during COVID-19 pandemic. Evidence from France," International Review of Law and Economics, Elsevier, vol. 70(C).
    3. Antill, Samuel & Grenadier, Steven R., 2019. "Optimal capital structure and bankruptcy choice: Dynamic bargaining versus liquidation," Journal of Financial Economics, Elsevier, vol. 133(1), pages 198-224.
    4. Aney, Madhav S. & Banerji, Sanjay, 2022. "Political connections, informational asymmetry, and the efficient resolution of financial distress," Economic Modelling, Elsevier, vol. 114(C).
    5. Oh, Frederick Dongchuhl & Park, Junghum, 2023. "A large creditor in contagious liquidity crises," Journal of Banking & Finance, Elsevier, vol. 146(C).
    6. Oh, Frederick Dongchuhl, 2013. "Contagion of a liquidity crisis between two firms," Journal of Financial Economics, Elsevier, vol. 107(2), pages 386-400.

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