Conflicts in Bankruptcy and the Sequence of Debt Issues

53 Pages Posted: 12 Jan 2016

See all articles by S. Abraham Ravid

S. Abraham Ravid

Yeshiva University - Syms School of Business

Ronald Sverdlove

New Jersey Institute of Technology, School of Management

Arturo Bris

IMD International; European Corporate Governance Institute (ECGI); Yale University - International Center for Finance

Gabriela Coiculescu

Yeshiva University - Syms School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: November 7, 2015

Abstract

This paper investigates the optimal sequencing of debt issues. Our theoretical model suggests that once firms issue debt with one level of seniority, they may have an incentive to alternate seniorities, because of priced absolute priority rule (APR) violations. When we introduce explicit costs of class conflict, the model yields cases of alternating seniorities and other cases where firms issue only one class of debt. The implications of the model are consistent with the observed regularities in a large database of debt issues. We test several other implications of our model as well.

Keywords: Bankruptcy, Absolute Priority Rule, Seniority, Debt

JEL Classification: G33

Suggested Citation

Ravid, S. Abraham and Sverdlove, Ronald and Bris, Arturo and Coiculescu, Gabriela, Conflicts in Bankruptcy and the Sequence of Debt Issues (November 7, 2015). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2713513

S. Abraham Ravid (Contact Author)

Yeshiva University - Syms School of Business ( email )

United States

Ronald Sverdlove

New Jersey Institute of Technology, School of Management ( email )

United States
973-596-8569 (Phone)

Arturo Bris

IMD International ( email )

Ch. de Bellerive 23
P.O. Box 915
CH-1001 Lausanne
Switzerland

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Yale University - International Center for Finance ( email )

Box 208200
New Haven, CT 06520
United States

Gabriela Coiculescu

Yeshiva University - Syms School of Business ( email )

United States

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