Strategic Debt Service

Mella‐Barral, Pierre; Perraudin, William

doi:10.1111/j.1540-6261.1997.tb04812.x

Cited by 420 publications

(283 citation statements)

References 27 publications

Supporting

Mentioning

271

Contrasting

Unclassified

Order By: Relevance

“…also Longstaff and Schwartz, 1995;Anderson and Sundaresan, 1996;Anderson et al, 1996;Mella-Barral, 1997;and Zhou, 2001). These considered the possibility of default prior to bond maturity if the value of the firm's assets fell below a certain level, the threshold or default boundary.…”

Section: Literature Reviewmentioning

confidence: 99%

The determinants of bank CDS spreads: evidence from the financial crisis

Chiaramonte

Casu

2013

The European Journal of Finance

View full text Add to dashboard Cite

show abstract

Section: Literature Reviewmentioning

confidence: 99%

The determinants of bank CDS spreads: evidence from the financial crisis

Chiaramonte

Casu

2013

The European Journal of Finance

View full text Add to dashboard Cite

show abstract

“…This is in contrast to the strategic debt servicing models of Anderson and Sundaresan (1996) and Mella-Barral and Perraudin (1997). In their models, equityholders default even at high cash flows to the extent that the payoff to the debtholders is just sufficient such that they do not have an incentive to liquidate the firm.…”

Section: The Modelmentioning

confidence: 58%

A structural model of debt pricing with creditor-determined liquidation

Bruche

Naqvi

2010

Journal of Economic Dynamics and Control

View full text Add to dashboard Cite

Citation: Bruche, M. and Naqvi, H. (2010). A structural model of debt pricing with creditordetermined liquidation. Journal of Economic Dynamics and Control, 34(5), pp. 951-967. doi: 10.1016/j.jedc.2010.01.005 This is the unspecified version of the paper.This version of the publication may differ from the final published version. Permanent AbstractThis paper develops a continuous time asset pricing model of debt and equity in a framework where equityholders decide when to default but creditors decide when to liquidate. This framework is relevant for environments where creditors exert a significant influence on the timing of liquidation, such as those of countries with creditor-friendly bankruptcy regimes, or in the case of secured debt. The interaction between the decisions of equityholders and creditors introduces an agency problem whereby equityholders default too early and creditors subsequently liquidate too early. Our model allows us to assess quantitatively how this problem affects the timing of default and liquidation, optimal capital structure, and spreads.

show abstract

“…The contribution by Myers (1977) and Myers & Majluf (1984) 3 More precisely, the Fischer et al (1989) model assumes the unlevered firm value plus its leverage potential as the state variable. We will come back to this point in a later section 4 A notable exception is given by Mella-Barral & Perraudin (1997) 5 Obviously, no sharp distinction between the two classes can be drawn, since the disadvantage of debt financing in the Leland (1994) framework stems from the bankruptcy costs, which are a form of agency costs. 6 For reviews, see e.g.…”

Section: Literature Reviewmentioning

confidence: 99%

Informational Asymmetry Between Managers and Investors in the Optimal Capital Structure Decision

Bank

Lawrenz

2005

SSRN Journal

View full text Add to dashboard Cite

In this article, we consider the impact of asymmetric information between managers and investors on the optimal capital structure decision. This is done within a continuous-time framework, where the relevant state variable is given by the EBIT value of the firm; an approach taken by (2004) amongst others. Our setup differs in that we assume the EBIT to follow an Arithmetic Brownian motion, i.e. it can assume negative values. More importantly, we extend this framework in two directions: (i) We introduce a separate management claim. (ii) We introduce asymmetric information between managers and investors by assuming that claimants receive noisy signals, which they process according to rational expectation principles.Our results show, that managers always try to avoid debt, and that their optimal bankruptcy threshold is always lower, than the threshold set by equity holders. The introduction of asymmetric information changes the optimality conditions, and consequently the capital structure decision. It is shown, that the informational asymmetry can substantially lower the optimal leverage ratio, even without assuming that managers are entrenched.

show abstract

Strategic Debt Service

Cited by 420 publications

References 27 publications

The determinants of bank CDS spreads: evidence from the financial crisis

The determinants of bank CDS spreads: evidence from the financial crisis

A structural model of debt pricing with creditor-determined liquidation

Informational Asymmetry Between Managers and Investors in the Optimal Capital Structure Decision

Contact Info

Product

Resources

About