TY - JOUR
T1 - The resolution of bankruptcy by auction
T2 - Allocating the residual right of design*
AU - Bhattacharyya, Sugato
AU - Singh, Rajdeep
PY - 1999/12
Y1 - 1999/12
N2 - In this paper, we examine the value of the right to choose the method of sale of corporate assets. We show that this right is valuable, and that its value comes from recognizing conflicting incentives of claimants at the time of sale. As with risky projects, senior and junior claimants are shown to have distinct preferences on a set of common auction procedures. They also differ on the issue of allocation of resources towards attracting bidders for the auction. As a consequence, the optimal allocation of the design right must depend on circumstances prevailing at the time of the sale. While, in general, selling the firm by auction does not guarantee the use of optimal selling arrangements, a suitable allocation of design rights may help mitigate inefficiency problems significantly.
AB - In this paper, we examine the value of the right to choose the method of sale of corporate assets. We show that this right is valuable, and that its value comes from recognizing conflicting incentives of claimants at the time of sale. As with risky projects, senior and junior claimants are shown to have distinct preferences on a set of common auction procedures. They also differ on the issue of allocation of resources towards attracting bidders for the auction. As a consequence, the optimal allocation of the design right must depend on circumstances prevailing at the time of the sale. While, in general, selling the firm by auction does not guarantee the use of optimal selling arrangements, a suitable allocation of design rights may help mitigate inefficiency problems significantly.
KW - Auctions
KW - Bankruptcy
KW - Residual rights
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U2 - 10.1016/S0304-405X(99)00038-0
DO - 10.1016/S0304-405X(99)00038-0
M3 - Article
AN - SCOPUS:0033474486
SN - 0304-405X
VL - 54
SP - 269
EP - 294
JO - Journal of Financial Economics
JF - Journal of Financial Economics
IS - 3
ER -