Resolution of Financial Distress under Chapter 11

Amira Annabi, Michèle Breton and Pascal François

Cahiers de recherche from CIRPEE

Abstract: We develop a contingent claims model of a firm in financial distress with a formal account for renegotiations under the Chapter 11 bankruptcy procedure. Shareholders and two classes of creditors (senior and junior) alternatively propose a reorganization plan subject to a vote. The bankruptcy judge can intervene in any renegotiation round to impose a plan. The multiple-stage bargaining process is solved in a non-cooperative game theory setting. The calibrated model yields liquidation rate, Chapter 11 duration and percentage of deviations from the Absolute Priority Rule that are consistent with empirical evidence.

Keywords: Credit risk; Chapter 11; Game theory; Dynamic programming (search for similar items in EconPapers)
JEL-codes: C61 C7 G33 G34 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-bec and nep-gth
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:lvl:lacicr:1048

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