Download This PaperA Structural Model of Debt Pricing with Creditor-Determined Liquidation
29 Pages Posted: 1 Oct 2009 Last revised: 2 Dec 2011
Date Written: January 6, 2010
Abstract
This paper develops a continuous time asset pricing model of debt and equity in a framework where equityholders decide when to default but creditors decide when to liquidate. This framework is relevant for environments where creditors exert a significant influence on the timing of liquidation, such as those of countries with creditor-friendly bankruptcy regimes, or in the case of secured debt. The interaction between the decisions of equityholders and creditors introduces an agency problem whereby equityholders default too early and creditors subsequently liquidate too early. Our model allows us to assess quantitatively how this problem affects the timing of default and liquidation, optimal capital structure, and spreads.
Keywords: Defaultable Debt Pricing, Creditor Induced Liquidation,Premature Liquidation
JEL Classification: G12, G13, G32, G33
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Capital Structure and Asset Prices: Some Effects of Bankruptcy Procedures
By Erwan Morellec and Pascal Francois
-
Optimal Debt and Equity Values in the Presence of Chapter 7 and Chapter 11
By Mark Broadie, Mikhail Chernov, ...
-
Liquidation Triggers and the Valuation of Equity and Debt
By Dan Galai, Alon Raviv, ...
-
Valuing Corporate Liabilities When the Default Threshold is Not an Absorbing Barrier
-
Chapter 11, Private Workouts and Corporate Debt Pricing Under Asymmetric Information
By Nan Chen
-
First Passage and Excursion Time Models for Valuing Defaultable Bonds
-
Creditor Coordination, Liquidation Timing, and Debt Valuation
By Max Bruche