In this paper we study firm dynamics and industry equilibrium when firms under financial distress face a non-trivial choice between alternative bankruptcy procedures. Given limited commitment and asymmetric information, financial contracts specify default, renegotiation and reorganization...

Government bailouts undermine the core principles of capitalism. They are also expensive, unjust, unpopular, and usually represent dramatic deviations from the rule of law. However, they are also, in some cases, necessary. The “problem of bailouts,” then, is that they are almost always...

Private Equity restructuring of companies using debt finance has been criticised for increasing financial distress and bankruptcy in the corporate sector and this was especially so in the aftermath of the financial crisis. We build a unique data set comprising the population of over eight...

In this paper, a model of corporate leverage choice is formulated in which corporate and differential personal taxes exist and supply side adjustments by firms enter into the determination of equilibrium prices of debt and equity. The presence of corporate tax shield substitutes for debt such as...

This survey paper examines existing theories of capital structure and related empirical tests with the aim to derive theoretical as well empirically testable predictions about the implications of the soft budget constraint for corporate capital structure. We show that the soft budget constraint...

We analyze how the availability of internal funds affects a firm's investment in the presence of capital market imperfections. Using a model that endogenizes the cost of external funds and allows for negative levels of internal funds, we show that under otherwise standard assumptions, investment...

The corporation's core objective is to further the interests of shareholders. But one judicially crafted exception has long existed. In many jurisdictions around the world, financial distress mandates a shift to a duty to creditors. In May 2007, the Delaware Supreme Court announced a modern law...

We are concerned with the design of a constitution for a firm--an ex ante contract which assigns residual rights of control (and possibly residual income rights) without reference to the issue to be decided. We focus attention on two polar constitutions: nonprofit cooperatives and outside...