The Liquidation Decision as a Principal Agent Problem

  • Peter Swoboda


Substantial insights into the capital structure problem can be won if it is understood as a principal agent problem. Many principals (equity holders, debt holders, customers, tax authority etc.) employ or are dependent on an agent or a group of agents (managers). In this paper a special aspect of this comprehensive principal agent problem is analyzed: the influence of financial structure on the liquidation decision of the firm. In chapter 2 only debt holders as principals are considered. In chapter 3 a further group of principals, the customers, are introduced. Titman (1984) was the first to deal with the influence of the claims of customers on the liquidation decision. Therefore, in a first step the problem as formulated and solved by Titman (1984) is presented and it is shown that his solution is deficient. In a second step alternative solutions are considered. The concluding remarks in chapter 4 refer to the introduction of still further principals into the analysis.


Agency Cost Equity Financing Debt Financing Equity Holder Equity Owner 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Arrow, K.J. (1985): The Economics of Agency, in: Pratt, J.W.; Zeckhauser, R.J. (Eds.): Principals and Agents: The Structure of Business, Boston, 37–51Google Scholar
  2. Drukarczyk, J. (1983): Kreditverträge, Mobiliarsicherheiten und Vorschläge zu ihrer Reform im Konkursrecht, Zeitschrift für Betriebswirtschaft, 53, 328–349Google Scholar
  3. Franke, G. (1981): Information, Property Rights, and the Theory of Corporate Finance, in: Derkinderen F.J.; Crum, R.L. (Eds.): Readings in Strategy for Corporate Investment, Boston, 63–83Google Scholar
  4. Franke, G. (1986): Zur Festlegung von Abstimmungsregeln im Insolvenz-verfahren, Zeitschrift für Betriebswirtschaft, 56, 614–630Google Scholar
  5. Gale, D.; Hellwig, M. (1985): Incentive Compatible Debt Contracts: The One-Period Problem, Review of Economic Studies, 52, 647–663CrossRefGoogle Scholar
  6. Haugen, R.A.; Senbet, L.W. (1978): The Insignificance of Bankruptcy Costs to the Theory of Optimal Capital Structure, Journal of Finance, 33, 383–393CrossRefGoogle Scholar
  7. Hax, H.; Marschdorf, H.J. (1983): Anforderungen an ein Insolvenzrecht aus betriebswirtschaftlicher Sicht, Betriebswirtschaftliche Forschung und Praxis, 35, 112–130Google Scholar
  8. Pratt, J.W.; Zeckhauser, R.J. (1985): Principals and Agents: An Over-view, in: Pratt, J.W.; Zeckhauser, R.J. (Eds.): Principals and Agents: The Structure of Business, Boston, 1–35Google Scholar
  9. Swoboda, P. (1987): Kapitalmarkt und Unternehmensfinanzierung - Zur Kapitalstruktur der Unternehmung, paper in print, GrazGoogle Scholar
  10. Titman, S. (1984): The Effect of Capital Structure on a Firm’s Liquidation Decision, Journal of Financial Economics, 13, 137–151CrossRefGoogle Scholar

Copyright information

© Springer-Verlag Berlin · Heidelberg 1987

Authors and Affiliations

  • Peter Swoboda

There are no affiliations available

Personalised recommendations