Tax benefit and bankruptcy cost of debt

Bankruptcy and Debt Portfolios

We use a heterogeneous-agent model, in which labor income is risky and markets are incomplete, to analyze consumer debt portfolios of secured and unsecured debt in the US. Compared with previous research, we emphasize the role of durables which not only generate utility but also serve as debt collateral. This allows a meaningful joint analysis of secured and unsecured debt and introduces endoge...

A Non-zero-sum Game Approach to Convertible Bonds: Tax Benefit, Bankruptcy Cost and Early/late Calls

Convertible bonds are hybrid securities that embody the characteristics of both straight bonds and equities. The conflicts of interest between bondholders and shareholders affect the security prices significantly. In this paper, we investigate how to use a non-zero-sum game framework to model the interaction between bondholders and shareholders and to evaluate the bond accordingly. Mathematical...

The Changing Bole of Debt In Bankruptcy

I am deeply indebted to Jeffrey Pliskin for his astute comments and statistical experience. I also owe The Jerome Levy Economics Institute thanks for their financial support for this project.

Credit Rationing, Bankruptcy Cost, and Optimal Debt Contract for Small Business

This paper examines the relationship between debt contract and the process of resolving financial distress, through either debt restructuring or bankruptcy procedure. It effectively justifies the popularity of the standard debt contract by demonstrating that the standard debt contract is the optimal debt contract for small business with the costly random verification scheme. Although this resul...

Valuing the Debt Tax Shield