Game Theoretic Analysis of Negotiations under Bankruptcy

European Journal of Operational Research, Volume 221, Issue 3, 16 September 2012, Pages 603-613.

Posted: 31 May 2011 Last revised: 8 Nov 2019

See all articles by Amira Annabi

Amira Annabi

Manhattan College; Manhattan College

Michèle Breton

HEC Montreal - Department of Management Sciences

Pascal Francois

HEC Montreal - Department of Finance

Date Written: September 16, 2012

Abstract

We extend the contingent claims framework for the levered firm in explicitly modeling the resolution of financial distress under formal bankruptcy as a non-cooperative game between claimants under the supervision of the bankruptcy judge. The identity of the class of claimants proposing the first reorganization plan is found to be a key determinant of the time spent under bankruptcy, the likelihood of liquidation and the renegotiated value of claims. Our quantitative results confirm the economic intuition that a bankruptcy design must trade-off the initial priority of claims with the viability of reorganized firms.

Keywords: bankruptcy procedure, game theory, dynamic programming

JEL Classification: C61, C7, G33, G34

Suggested Citation

Annabi, Amira and Breton, Michèle and Francois, Pascal, Game Theoretic Analysis of Negotiations under Bankruptcy (September 16, 2012). European Journal of Operational Research, Volume 221, Issue 3, 16 September 2012, Pages 603-613., Available at SSRN: https://ssrn.com/abstract=1856255 or http://dx.doi.org/10.2139/ssrn.1856255

Amira Annabi

Manhattan College ( email )

The O'Malley School of Business
Economics and Finance Department
Riverdale, NY 10471
United States

HOME PAGE: http://https://www.linkedin.com/in/amiraannabi/

Manhattan College ( email )

Manhattan College Parkway
Riverdale, NY 10471
United States

Michèle Breton (Contact Author)

HEC Montreal - Department of Management Sciences ( email )

Montreal, Quebec H3T 2A7
Canada
514-340-6490 (Phone)
514-340-5634 (Fax)

Pascal Francois

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada
514-340-7743 (Phone)
514-340-5632 (Fax)

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