Rejecting the Marie Antoinette Paradigm of Prejudgment Interest
Posted: 14 Jan 2005
This paper examines principles for properly computing prejudgment interest by examining the impact on different corporate constituencies. This paper concludes that prejudgment interest at a promisor's cost of funds can undercompensate promisees, by shifting value from the promisee's equityholders to its creditors through a forced investment that decreases the risk of the promisee's portfolio of assets.
Keywords: prejudgment interest, corporate constituencies
JEL Classification: K41, K12
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