Working Paper: NBER ID: w7614
Authors: Lucian Arye Bebchuk; William J. Friedman; Alicia Townsend
Abstract: This paper revisits the proposal to use options in corporate bankruptcy that was put forward in Bebchuk (1988). According to the proposed procedure, corporate bankruptcy should be implemented through the distribution to participants of appropriately designed options. The paper starts by discussing the goals that should guide the design of bankruptcy procedures. The paper then explains how the options procedure can improve both ex post efficiency and ex ante efficiency. The paper offers a refined version of the procedure, and it also responds to questions that have been raised regarding the execution and desirability of the procedure. The paper concludes by explaining the relationship between the options approach to corporate bankruptcy and the Black-Scholes characterization of all corporate securities as options.
Keywords: No keywords provided
JEL Codes: G3; G33; K2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| options procedure (G13) | improved outcomes (I14) |
| options procedure (G13) | better allocation of value among participants (D46) |
| options procedure (G13) | maximization of value of reorganized company (L21) |
| options procedure (G13) | reduced time and costs associated with reorganization (D23) |
| options procedure (G13) | enhanced ex ante efficiency (D61) |
| options procedure (G13) | alignment of division of value with contractual rights (D46) |
| existing bargaining process (J52) | deviations from contractual entitlements (D86) |