Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/159418
Authors: 
Agliardi, Elettra
Andergassen, Rainer
Year of Publication: 
2006
Series/Report no.: 
Quaderni - Working Paper DSE 577
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.
Persistent Identifier of the first edition: 
Creative Commons License: 
https://creativecommons.org/licenses/by/3.0/
Document Type: 
Working Paper

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