Our base model assumed zero liability under debt, so that the DM’s objective was given by E [ (R(p)− B)+ ] . In practice, failing to repay the debt often carries negative consequences for a borrower due to, e.g., recourse by the lender (Wells Fargo, 2016), or bankruptcy/reputation costs when the firm goes into default. To capture this limited (but nonzero) liability, we now assume that a DM fac...

Bankruptcy is a legal procedure that claims a person or organization as a debtor. It is essential to ascertain the risk of bankruptcy at initial stages to prevent financial losses. In this perspective, different soft computing techniques can be employed to ascertain bankruptcy. This study proposes a bankruptcy prediction system to categorize the companies based on extent of risk. The prediction...

In this paper we solve the problem of determining the default time of a firm in such a way as to maximize its total value, which includes bankruptcy costs and tax benefits, with the condition that the value of equity must be nonnegative. By applying dynamic programming in discrete time, we find results which extends those of Merton (1974), and we give an application for the approximation of mod...

Using a large sample of Chapter 11 filings from 1996 to 2007 we find that the endogenously determined expected recovery derived from Leland and Toft (1996) has strong explanatory power on debt recovery observed in the market. Our results hold after firm characteristics, industry distress, and macroeconomic conditions are accounted for. In addition, we find that agency conflicts and ex post bank...

This paper examines the effect of leverage on the effectiveness of a self-financed taxsubsidy program offered by a government in stimulating a firm’s investment. We show that the firm, be it levered or unlevered, has an incentive to hasten its investment because of the agency conflicts arising from the commitment made by the government on the terms of the tax-subsidy program. We further show th...

Entrepreneurship is risky; entrepreneurs forgo wages and invest their time and resources into a business with large potential gains, but uninsurable risks. It is vital to know the extent of these risks, and the insurance available against them, in order to assess corporate tax and personal bankruptcy reforms. We document that incorporated entrepreneurs operate larger businesses, accumulate more...

judgment of bankruptcy leads to bankruptcy of merchant. therefore, merchant will be incapable and cannot possess in his asset. various provisions can be found in commercial code, regarding contract’s of bankrupt merchant, which is inconsistent with civil code. article 423 has stipulated that trades of merchant after bankruptcy, in three cases will be void. this position is not consistent with c...

We investigate a proposed reform of U.S. personal bankruptcy law which combines Chapters 7 and 13. The proposed reform obliges debtors in bankruptcy to use part of both their wealth and their future earnings to repay debt and therefore bases the obligation to repay in bankruptcy on debtors' ability-to-pay. An important function of personal bankruptcy is to provide partial wealth insurance for r...

This paper introduces an explicit institution of bankruptcy into a general equilibrium model of endogenous ̄nancial markets with asymmetric information. The institution of bankruptcy is modelled as a set of rules that determine if an agent is eligible to have his debts discharged. Those rules are called a bankruptcy code. Given a bankruptcy code, we allow free entry of intermediaries o®ering al...