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Capital Structure in an Industry Equilibrium with Endogenous Liquidation Values

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  • Miguel Rosellón

Abstract

This paper investigates the interaction between financial structure, liquidation values and product market equilibrium. Liquidation values depend on how many firms are liquidated, and therefore on the industry equilibrium of capital structures and of technology choices. We show that firms using a technology with high liquidation value issue less debt than those with low liquidation value even if these ones may be inefficiently liquidated. With respect to the equilibrium in the industry, we obtain that even if in equilibrium all firms use the same technology, firms will use widely different capital structures. JEL classification: G32, G33.

Suggested Citation

  • Miguel Rosellón, 2000. "Capital Structure in an Industry Equilibrium with Endogenous Liquidation Values," Review of Finance, European Finance Association, vol. 4(3), pages 279-299.
    • Handle: RePEc:oup:revfin:v:4:y:2000:i:3:p:279-299.
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    File URL: http://hdl.handle.net/10.1023/A:1011447708388
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    More about this item

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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