Please use this identifier to cite or link to this item: https://doi.org/10.1016/j.jedc.2010.01.005
Title: A structural model of debt pricing with creditor-determined liquidation
Authors: Bruche, M.
Naqvi, H. 
Keywords: Creditor induced liquidation
Defaultable debt pricing
Premature liquidation
Issue Date: 2010
Source: Bruche, M., Naqvi, H. (2010). A structural model of debt pricing with creditor-determined liquidation. Journal of Economic Dynamics and Control 34 (5) : 951-967. ScholarBank@NUS Repository. https://doi.org/10.1016/j.jedc.2010.01.005
Abstract: This paper develops a continuous time asset pricing model of debt and equity in a framework where equityholders decide when to default but creditors decide when to liquidate. This framework is relevant for environments where creditors exert a significant influence on the timing of liquidation, such as those of countries with creditor-friendly bankruptcy regimes, or in the case of secured debt. The interaction between the decisions of equityholders and creditors introduces an agency problem whereby equityholders default too early and creditors subsequently liquidate too early. Our model allows us to assess quantitatively how this problem affects the timing of default and liquidation, optimal capital structure, and spreads. © 2010 Elsevier B.V. All rights reserved.
Source Title: Journal of Economic Dynamics and Control
URI: http://scholarbank.nus.edu.sg/handle/10635/44448
ISSN: 01651889
DOI: 10.1016/j.jedc.2010.01.005
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