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Financial and Operational Creditors in Bankruptcy Resolution: A General Equilibrium Approach Under Three Game-Theoretic Division Rules with an Application to India

  • Rohit Prasad ORCID logo and S. Veena Iyer ORCID logo EMAIL logo
Published/Copyright: September 26, 2023
The B.E. Journal of Theoretical Economics
From the journal The B.E. Journal of Theoretical Economics Volume 24 Issue 1

Abstract

The existing literature on bankruptcy division either ignores creditor type or focuses on secured and unsecured creditors, subsuming operational creditors in the latter category. Further, implications for the debtor and the economy as a whole are under-emphasized. We build a general equilibrium model with default using three game-theoretic division rules to examine the appropriate adjudication of the claims of financial and operational creditors for optimum output and firm profits as well as creditor welfare. Our paper extends and enriches the normative discussion on these game-theoretic division rules. The analysis indicates that the proportion of claims held by financial and operational creditors is a key determinant of overall outcomes, and that interests of the corporate debtor represent common ground that could soften creditor competition. Using a dataset of bankruptcy resolution cases from India, we identify the specific rules that approximate actual payout for different claim proportions and deduce the overriding power of financial creditors. Institutional changes that would result in better long-term outcomes are proposed.

Keywords: operational creditors; financial creditors; general equilibrium; game-theoretic bankruptcy division rules; India
JEL Classification: D50; C70; G33
Corresponding author: S. Veena Iyer, Management Development Institute Gurgaon, B-9, Scholars Block, Mehrauli Road, Sukhrali 122007, Gurugram, India, E-mail: .

  1. Research funding: This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors.

  2. Author contributions: Rohit Prasad: Conceptualization, Methodology, Formal Analysis, Writing, Review & Editing. S. Veena Iyer: Methodology, Formal Analysis, Writing, Review & Editing, Visualization.

  3. Competing interests: The authors declare no competing interests regarding this article.

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Received: 2023-04-14
Accepted: 2023-08-07
Published Online: 2023-09-26

© 2023 Walter de Gruyter GmbH, Berlin/Boston

Articles in the same Issue

  1. Frontmatter
  2. Research Articles
  3. Screening with Privacy on (Im)persistency
  4. Quality, Shelf Life, and Demand Uncertainty
  5. Transfers and Resilience in Economic Networks
  6. Technology Adoption under Negative External Effects
  7. Management Centrality in Sequential Bargaining: Implications for Strategic Delegation, Welfare, and Stakeholder Conflict
  8. Financial and Operational Creditors in Bankruptcy Resolution: A General Equilibrium Approach Under Three Game-Theoretic Division Rules with an Application to India
  9. Product Differentiation and Trade
  10. A Theoretical Analysis of Collusion Involving Technology Licensing Under Diseconomies of Scale
  11. Product Quality and Product Compatibility in Network Industries
  12. How the Future Shapes Consumption with Time-Inconsistent Preferences
  13. Notes
  14. The Strategic Adoption of Environmental Corporate Social Responsibility with Network Externalities
  15. Strategic Environmental Corporate Social Responsibility (ECSR) Certification and Endogenous Market Structure
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https://doi.org/10.1515/bejte-2023-0031
Keywords for this article
operational creditors; financial creditors; general equilibrium; game-theoretic bankruptcy division rules; India

Articles in the same Issue

  1. Frontmatter
  2. Research Articles
  3. Screening with Privacy on (Im)persistency
  4. Quality, Shelf Life, and Demand Uncertainty
  5. Transfers and Resilience in Economic Networks
  6. Technology Adoption under Negative External Effects
  7. Management Centrality in Sequential Bargaining: Implications for Strategic Delegation, Welfare, and Stakeholder Conflict
  8. Financial and Operational Creditors in Bankruptcy Resolution: A General Equilibrium Approach Under Three Game-Theoretic Division Rules with an Application to India
  9. Product Differentiation and Trade
  10. A Theoretical Analysis of Collusion Involving Technology Licensing Under Diseconomies of Scale
  11. Product Quality and Product Compatibility in Network Industries
  12. How the Future Shapes Consumption with Time-Inconsistent Preferences
  13. Notes
  14. The Strategic Adoption of Environmental Corporate Social Responsibility with Network Externalities
  15. Strategic Environmental Corporate Social Responsibility (ECSR) Certification and Endogenous Market Structure
  16. A Note on a Moment Inequality
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