Claimholder Incentive Conflicts in Reorganization: The Role of Bankruptcy Law

When a firm is financial distress, in most cases a set of mutually advantageous reorganization plans exist. This article shows that the bankruptcy code, by providing rules governing the negotiation process, yields a unique solution to the reorganization process. In addition, the structure imposed by the code mitigates the holdout problem created by the individual claimant's divergent incentives. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

[1]  Gary D. Libecap,et al.  The Influence of Private Contractual Failure on Regulation: The Case of Oil Field Unitization , 1985, Journal of Political Economy.

[2]  Jeremy I. Bulow,et al.  The bankruptcy decision , 1978 .

[3]  Sheridan Titman,et al.  The effect of capital structure on a firm's liquidation decision☆ , 1984 .

[4]  F. Easterbrook,et al.  Voting in Corporate Law , 1983, The Journal of Law and Economics.

[5]  M. White.  Public Policy Toward Bankruptcy: Me-First and Other Priority Rules , 1980 .

[6]  M. Roe,et al.  Bankruptcy and Debt: A New Model for Corporate Reorganization , 1983 .

[7]  P. Cramton.  Bargaining with Incomplete Information: An Infinite-Horizon Model with Two-Sided Uncertainty , 1984 .

[8]  Jeffrey L. Callen,et al.  Corporate leverage and growth the game-theoretic issues , 1980 .

[9]  A. Rubinstein.  Perfect Equilibrium in a Bargaining Model , 1982 .

[10]  Jeffrey L. Callen,et al.  Reorganization in bankruptcy and the issue of strategic risk , 1983 .

[11]  T. Jackson.  Bankruptcy, Non-Bankruptcy Entitlements, and the Creditors' Bargain , 1982 .

[12]  J. P. Gould,et al.  The Economics of Legal Conflicts , 1973, The Journal of Legal Studies.

[13]  Lemma W. Senbet,et al.  THE INSIGNIFICANCE OF BANKRUPTCY COSTS TO THE THEORY OF OPTIMAL CAPITAL STRUCTURE , 1978 .

[14]  John Kenneth Galbraith,et al.  Money: Whence It Came, Where It Went , 1977 .

[15]  D. Fudenberg,et al.  Sequential Bargaining with Incomplete Information , 1983 .

[16]  S. Wiggins,et al.  Contractual Responses to the Common Pool: Prorationing of Crude Oil Production , 1984 .