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A Note on Bankruptcy Auction with a Fair Bidder

Author

Listed:
  • Rajesh Kumar Acha

    (XLRI - Xavier School of Management)

  • Sumit Sarkar

    (XLRI - Xavier School of Management)

Abstract

In corporate bankruptcy auctions in India, the financial creditors choose the winner based on the bids and the share of bankruptcy surplus (bid value minus liquidation value) offered towards their claim settlement. We show that self-interested bidders allocate the entire bankruptcy surplus to the financial creditors, whose claim exceeds the bid. A fair bidder allocates the surplus between financial and operational creditors in proportion to their residual claims. The winning bid increases if the winner is fair, and the ratio of the residual claims of operational creditors to that of the financial creditors is greater than a threshold.

Suggested Citation

  • Rajesh Kumar Acha & Sumit Sarkar, 2024. "A Note on Bankruptcy Auction with a Fair Bidder," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 22(1), pages 211-221, March.
    • Handle: RePEc:spr:jqecon:v:22:y:2024:i:1:d:10.1007_s40953-023-00372-9
    DOI: 10.1007/s40953-023-00372-9
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    More about this item

    Keywords

    Bankruptcy; Auction; Fairness; Allocation; Insolvency;
    All these keywords.

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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