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Creditor Coordination, Liquidation Timing, and Debt Valuation

Published online by Cambridge University Press:  27 May 2011

Max Bruche*
CEMFI, Centro de Estudios Monetarios y Financieros, Casado del Alisal 5, 28014 Madrid, Spain.


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.

Research Articles
Copyright © Michael G. Foster School of Business, University of Washington 2011

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