Year: 1993
Type: article
Abstract: Bankruptcy rules often enable equityholders to obtain value even though debtholders are not paid in full. This paper addresses the ex ante effects of violations of absolute priority. These violations should influence decisions concerning project choice and human capital investment that determine the extent to which a firm?s managers have an advantage over others in operating the firm?s assets. In an absolute priority regime, managers will ?entrench? themselves by overinvestment in assets that require their unique skills. Managers will also underinvest in firm-specific human capital. Allowing ex post violations of absolute priority decreases the severity of these two problems.
Source: bepress Legal Repository
Authors: Randal C. Picker, Lucian A. Bebchuk
Institution: University of Chicago
Language: English
Subfield: Law
Field: Social Sciences
Domain: Social Sciences
Open Access status: green
Funder: National Science Foundation
OpenAlex ID: W629746885