Bankruptcy rules and debt contracting: on the relative efficiency of absolute priority, proportionate priority, and first-come, first-served rules

An analysis showing that allowing creditors to "run" on a firm in financial distress is socially valuable, since it compensates them for monitoring the firm's condition; in contrast, strict adherence to absolute and proportionate priority rules allows lenders to free ride on the monitoring efforts of others, exacerbating the firm's moral hazard problem.

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Year of publication:	1994
Authors:	Longhofer, Stanley D.
Institutions:	Federal Reserve Bank of Cleveland
Subject:	Bankruptcy

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Extent:	application/pdf
Series:	Working Paper.
Type of publication:	Book / Working Paper
Language:	English
Notes:	Number 9415
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005428231