An Intertemporal Model of Bankruptcy

Murray Frank ()

Working Paper from Economics Department, Queen's University

Abstract: A finite horizon model of bankruptcy is developed. The role of a perfect capital market is discussed. Both additive and multiplicative Knightian uncertainty are analyzed. Low revenue increases the probability of bankruptcy because it reduces the expectation of future revenues if not bankrupt. Most bankruptcies are predicted to happen to young firms. Entrepreneurs in declining firms will be observed to get lazier as the firm declines.

Pages: 34 pages
Date: 1984
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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:577

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