Conflicts in Bankruptcy and the Sequence of Debt Issues

Document Type

Article

Publication Date

1-26-2016

Abstract

This paper investigates the optimal sequencing of debt issues. Our theoretical model suggests that once firms issue debt with one level of seniority, they may have an incentive to alternate seniorities, because of violations of the priced absolute priority rule (APR). When we introduce explicit costs of class conflict, the model yields cases of alternating seniorities and other cases in which firms issue only one class of debt. The implications of the model are consistent with the observed regularities in a large database of debt issues. We test several other implications of our model as well.

Identifier

84959423225 (Scopus)

Publication Title

Journal of Financial and Quantitative Analysis

External Full Text Location

https://doi.org/10.1017/S0022109015000538

e-ISSN

17566916

ISSN

00221090

First Page

1353

Last Page

1388

Issue

6

Volume

50

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