NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Ex Ante Costs of Violating Absolute Priority in Bankruptcy

Lucian Arye Bebchuk

NBER Working Paper No. 8388
Issued in July 2001
NBER Program(s):   LE

A basic question for the design of bankruptcy law concerns whether value should be divided in accordance with absolute priority. Research done in the past decade has suggested that deviations from absolute priority have beneficial ex ante effects. In contrast, this paper shows that ex post deviations from absolute priority also have negative effects on ex ante decisions taken by shareholders. Such deviations aggravate the moral hazard problem with respect to project choice - increasing the equityholders' incentive to favor risky projects - as well as with respect to borrowing and dividend decisions.

download in pdf format
   (151 K)

email paper

This paper is available as PDF (151 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w8388

Published: Bebchuk, Lucian Arye. "Ex Ante Costs Of Violating Absolute Priority In Bankruptcy," Journal of Finance, 2002, v57(1,Feb), 445-460. citation courtesy of

Users who downloaded this paper also downloaded these:
Hart w7921 Different Approaches to Bankruptcy
Bebchuk w7614 Using Options to Divide Value in Corporate Bankruptcy
Bebchuk w6473 Chapter 11
Aghion, Hart, and Moore w4097 The Economics of Bankruptcy Reform
Bebchuk and Fried w6472 The Uneasy Case for the Priority of Secured Claims in Bankruptcy: Further Thoughts and a Reply to Critics
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us