Capital Structure and Asset Prices: Some Effects of Bankruptcy Procedures

Pascal Francois
Additional contact information
Pascal Francois: HEC Montreal

The Journal of Business, 2004, vol. 77, issue 2, 387-412

Abstract: We examine the impact of the U.S. bankruptcy procedure on the valuation of corporate securities and capital structure decisions. We provide closed-form solutions for corporate debt and equity values when defaulting firms can either liquidate their assets or renegotiate outstanding debt under court protection. We show that the possibility to renegotiate the debt contract (i) has an ambiguous impact on leverage choices and (ii) increases credit spreads on corporate debt. The sharing rule of cash flows during bankruptcy has a large impact on optimal leverage. By contrast, credit spreads on corporate debt show little sensitivity to this very parameter.

Date: 2004
References: Add references at CitEc
Citations: View citations in EconPapers (39)

Downloads: (external link)
http://dx.doi.org/10.1086/381280 main text (application/pdf)
Access to the online full text or PDF requires a subscription.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ucp:jnlbus:v:77:y:2004:i:2:p:387-412

Access Statistics for this article

More articles in The Journal of Business from University of Chicago Press
Bibliographic data for series maintained by Journals Division ().