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Coalitions, the Me-First Rule, and the Liquidation Decision

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  • James S. Ang
  • Jess H. Chua

Abstract

Conventional wisdom in economics recommends that a bankrupt firm with liquidation value greater than going-concern value be liquidated by the creditors and that a firm with going-concern value greater than liquidation value continue to operate. Recently, counterexamples to the traditional rule have been presented. This note argues that violation of the me-first rule is responsible for these counterexamples. Since violation of the me-first rule involves the absence of value-maximization on the part of some economic agents, economic theories concerned with rational behavior may justifiably still assume that the liquidation decision follows the traditional rule.

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  • James S. Ang & Jess H. Chua, 1980. "Coalitions, the Me-First Rule, and the Liquidation Decision," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 355-359, Spring.
    • Handle: RePEc:rje:bellje:v:11:y:1980:i:spring:p:355-359
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    Cited by:

    1. Gopinath, C., 1995. "External influence on firms: An exploratory model of bank strategies," Journal of Business Research, Elsevier, vol. 34(2), pages 133-143, October.
    2. Ang, James S. & Jung, Min-Je, 1998. "Explicit versus implicit contracting in the debt market: The case of leasing," International Review of Financial Analysis, Elsevier, vol. 7(2), pages 153-169.
    3. Daigle, Katherine H & Maloney, Michael T, 1994. "Residual Claims in Bankruptcy: An Agency Theory Explanation," Journal of Law and Economics, University of Chicago Press, vol. 37(1), pages 157-192, April.

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