Last Resort Gambles, Risky Debt and Liquidation Policy

Agliardi, Elettra and Andergassen, Rainer (2006) Last Resort Gambles, Risky Debt and Liquidation Policy. Bologna: Dipartimento di Scienze economiche DSE, p. 29. DOI 10.6092/unibo/amsacta/4708. In: Quaderni - Working Paper DSE (577). ISSN 2282-6483.
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Abstract

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 projects which boost 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 boost the company’s value, delaying liquidation. We study how the liquidation and the last resort gamble strategies are affected by the firm’s capital structure.

Abstract
Document type
Monograph (Working Paper)
Creators
CreatorsAffiliationORCID
Agliardi, Elettra
Andergassen, Rainer
Keywords
Last resort gambles; risky investments; liquidation policy; real options
Subjects
ISSN
2282-6483
DOI
Deposit date
29 Feb 2016 11:18
Last modified
29 Feb 2016 11:18
URI

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