Work

Ex Ante Costs of Violating Absolute Priority in Bankruptcy

Year: 2002

Type: article

Abstract: ABSTRACT A basic question for the design of bankruptcy law concerns whether value should be divided in accordance with absolute priority. Research done in the past decade has suggested that deviations from absolute priority have beneficial ex ante effects. In contrast, this paper shows that ex post deviations from absolute priority also have negative effects on ex ante decisions taken by shareholders. Such deviations aggravate the moral hazard problem with respect to project choice‐increasing the equityholders incentive to favor risky projects‐as well as with respect to borrowing and dividend decisions.

Source: The Journal of Finance

DOI: 10.1111/1540-6261.00427

Author: Lucian Arye Bebchuk

Institutions: U.S. National Science Foundation, Harvard University

Language: English

Topic: Corporate Insolvency and Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

SDG: Peace, justice, and strong institutions

Open Access status: bronze

OpenAlex ID: W3122899385

FWCI: 37.47

Cites: 52

Cited by: 156

Related to: 10