TY  - JOUR
AU  - Bebchuk,Lucian Arye
TI  - Ex Ante Costs of Violating Absolute Priority in Bankruptcy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8388
PY  - 2001
Y2  - July 2001
UR  - http://www.nber.org/papers/w8388
L1  - http://www.nber.org/papers/w8388.pdf
N1  - Author contact info:
Lucian A. Bebchuk
Harvard Law School
1545 Massachusetts Avenue
Cambridge, MA 02138
Tel: 617/495-3138
Fax: 617/812-0554
E-Mail: bebchuk@law.harvard.edu
AB  - 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.
ER  -