Creditor Coordination, Liquidation Timing, and Debt Valuation

37 Pages Posted: 17 Mar 2008 Last revised: 3 Dec 2011

Max Bruche

Cass Business School, City University London; Financial Markets Group (LSE)

Date Written: April 19, 2010


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 discussing 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 co-ordination failures between creditors, such as automatic stays and preference law, are also considered. The model suggests that such features, while preventing co-ordination failures, can decrease welfare.

Keywords: asset pricing, real options, bankruptcy, liquidation, coordination failure, global games, capital structure

JEL Classification: G32, G33, G13, G72

Suggested Citation

Bruche, Max, Creditor Coordination, Liquidation Timing, and Debt Valuation (April 19, 2010). Journal of Financial and Quantitative Analysis (JFQA), Vol. 46, No. 5, 2011; AFA 2009 San Francisco Meetings Paper. Available at SSRN:

Max Bruche (Contact Author)

Cass Business School, City University London ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 (20) 7040 5106 (Phone)
+44 (20) 7040 8881 (Fax)


Financial Markets Group (LSE) ( email )

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London WC2A 2AE
United Kingdom

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