Game Theoretic Analysis of Negotiations under Bankruptcy

Posted: 31 May 2011  

Amira Annabi

Manhattan College

Michèle Breton

HEC Montreal - Department of Management Sciences

Pascal Francois

HEC Montreal - Department of Finance

Date Written: May 31, 2011

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 (May 31, 2011). Available at SSRN: https://ssrn.com/abstract=1856255 or http://dx.doi.org/10.2139/ssrn.1856255

Amira Annabi

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)

Paper statistics

Abstract Views
783