Abstract: This paper studies a financial contracting problem where a firm privately observes its cash flow and faces a limited liability constraint. The firm's collateral is piecemeal divisible and can only be liquidated continuously by resorting to the service of a costly third party, typically associated with bankruptcy. In this situation, multi-class collateralized debt is optimal, in which the firm makes several debt-like promises with a seniority structure. The decision over continuous and piecemeal liquidation depends on both the cost of introducing the third party and the firm's funding need. Allowing the firm to refinance ex-post through surreptitious liquidation may reduce the firm's ex-ante payoff, consistent with covenants in debt contracts prohibiting the sale of assets.

Keywords: Financial contracting; Incentive-compatibility; Limited liability; Indivisible collateral; Costly liquidation.

论文链接：https://doi.org/10.1016/j.geb.2019.09.011

   本文于2019年11月在线发表于Games and Economic Behavior上，该期刊为太阳集团0638官方网站A类奖励期刊，作者按姓氏字母排序。