Last Resort Gambles, Risky Debt and Liquidation Policy

This paper develops a real option model in which the interaction between debt, liquidation policy and risky investments is studied. We consider a manager who owns the firm and faces the opportunity to invest in risky pro jects which may bo ost current profits at the cost of bankruptcy if they turn out to be unsuccessful. These investments are "last resort gambles" in the sense that, if successful, they save the company from insolvency, while, if unsuccessful, they make liquidation unavoidable. We show that last resort gamble strategies delay liquidation. We study how the liquidation and the last resort gamble strategies are affected by the firmÕs capital structure.Last resort gambles; risky investments; liquidation policy; real options.

Historical Gloss, Madisonian Liquidation, and the Originalism Debate

The U.S. Constitution is old, relatively brief, and very difficult to amend. In its original form, the Constitution was primarily a framework for a new national government, and for 230 years the national government has operated under that framework even as conditions have changed in ways beyond the Founders’ conceivable imaginations. The framework has survived in no small part because government institutions have themselves played an important role in helping to fill in and clarify the framework through their practices and interactions, informed by the realities of governance. Courts, the political branches, and academic commentators commonly give weight to such post-Founding governmental practice in discerning the Constitution’s separation of powers. That approach has been referred to as the “historical gloss” method of constitutional interpretation, based on language that Justice Frankfurter used to describe the concept in his concurrence in the Youngstown steel seizure case. Some originalist commentators, however, have advanced a potentially competing approach to crediting post-Founding practice, which they refer to as “liquidation,” an idea that they ascribe to James Madison and certain other members of the Founding generation. To date, there has not been any systematic effort to compare gloss and liquidation, even though the differences between them bear on the constitutionality of a range of governmental practices relating to both domestic and foreign affairs in the fields of constitutional law and federal courts. This Article fills that gap in the literature. We first provide an account of what must be shown in order to establish historical gloss. Our account focuses on longstanding governmental practices that have proven to be stable—that is, practices that have operated for a significant amount of time without generating continued inter-branch contestation. We then consider the extent to which the liquidation concept differs from that of gloss and whether those differences render liquidation more or less normatively attractive than gloss. We argue that a narrow account of liquidation, offered by Professor Caleb Nelson, most clearly distinguishes liquidation from gloss, but that it does so in ways that are normatively problematic. We further argue that a broader account of liquidation, recently offered by Professor William Baude, responds to those normative concerns by diminishing the distinction between liquidation and gloss, but that significant differences remain that continue to raise normative problems for liquidation. Finally, we question whether either scholar’s account of liquidation is properly attributed to Madison

Technological aspects of technogenic disturbance liquidation in the areas of coal-gas deposits development

The objective of this work is to develop the technological measures for liquidation of technogenic disturbances that have arisen within the residential areas. Based on the results of geophysical studies, the causes and factors of Earth’s surface caving occurrence that arose in the result of natural-technogenic processes activation in underworked massif and are caused by the soil subsidence under buildings and constructions, have been determined. The solution of the problem was carried out with the use of methods for observing the natural pulsed electromagnetic field of the Earth and electric tomography in the area adjacent to the place of caving. The conclusions about the possible causes of the caving trough formation and its further development have been formulated, as well as the technological scheme for its liquidation have been developed. The developed new technological scheme allows conducting the effective liquidation works in conditions of proximity to the residential buildings and maximally reduces these scopes of works at ecological and protective measures

Portfolio optimization in the case of an asset with a given liquidation time distribution

Management of the portfolios containing low liquidity assets is a tedious problem. The buyer proposes the price that can differ greatly from the paper value estimated by the seller, the seller, on the other hand, can not liquidate his portfolio instantly and waits for a more favorable offer. To minimize losses in this case we need to develop new methods. One of the steps moving the theory towards practical needs is to take into account the time lag of the liquidation of an illiquid asset. This task became especially significant for the practitioners in the time of the global financial crises. Working in the Merton's optimal consumption framework with continuous time we consider an optimization problem for a portfolio with an illiquid, a risky and a risk-free asset. While a standard Black-Scholes market describes the liquid part of the investment the illiquid asset is sold at a random moment with prescribed liquidation time distribution. In the moment of liquidation it generates additional liquid wealth dependent on illiquid assets paper value. The investor has the logarithmic utility function as a limit case of a HARA-type utility. Different distributions of the liquidation time of the illiquid asset are under consideration - a classical exponential distribution and Weibull distribution that is more practically relevant. Under certain conditions we show the existence of the viscosity solution in both cases. Applying numerical methods we compare classical Merton's strategies and the optimal consumption-allocation strategies for portfolios with different liquidation-time distributions of an illiquid asset.Comment: 30 pages, 1 figur

Liquidation Triggers and the Valuation of Equity and Debt

Net-worth covenants, as introduced by Black and Cox (1976), provide the firm’s bondholders with the right to force reorganization or liquidation if the value of the firm falls below a certain threshold. In the event of default, however, many bankruptcy codes stipulate an automatic stay of assets that prevent bondholders from triggering liquidation and thus impact many positive net-worth covenants. To consider this impact on a corporation’s capital structure we develop a general model of liquidation driven by a liquidation trigger. This trigger accumulates with time and severity of distress. In addition, current distress periods may have greater weight than old ones. The tractability of the approach stems from its ability to allow parameters appropriate for different legal rules and types of bondholder safety covenants. The proposed model includes several well-known models, like Merton, Black- Cox and others. We show how to valuate various types of corporate securities by using this model. Numerical results and sensitivity analysis are presented for selected basic cases.default, bankruptcy, liquidation trigger, debt pricing, corporate finance

CONSIDERATIONS ON REORGANIZATION. A COMPARISON OF REORGANIZATION RATES IN EASTERN EUROPE

In our paper, we discuss reorganization from two points of view: its purpose and the choice between reorganization and liquidation, by reviewing the existing literature. After setting an appropriate theoretical base for interpretation, we focus on comparireorganization rate, reorganization versus liquidation, Eastern Europe

Progressive Taxation and Corporate Liquidation: Analysis and Policy Implications

This paper contributes to the debate on alternative corporate tax schemes, employing a rigorous real option methodology which has never been used to study both liquidation policy and taxation. Different tax systems are considered, according to whether the tax regime is progressive or flat and losses are deductible or not. The critical liquidation threshold is derived as a function of interest expenses, the firmÕs driving parameters and the tax rates and taxation brackets. It is shown that only the adoption of a flat tax plan does not interfere with the firmÕs liquidation policy, while any progressive tax schedule can slow down or speed up the closure policy.Corporate debt, default risk, progressive tax, real options.