The goal of this paper is to analyz

The goal of this paper is to analyze the economic effects of bankruptcy
law, with no ex ante assumptions concerning whether the law is efficient. We
consider in our analysis both the effects of Fama and Miller's me-first rules
and those of several other rules which come closer to formalizing actual
bankruptcy practices. Unlike Fama and Miller, we do not assume the firm's
investment decisions to be fixed. Rather, we model explicitly the interrelationship
between firms' economic and financial decisions. Further, we assume that
transactions are not costless, and that the pattern of transactions which does
occur will reflect the relative costs of particular groups' bargaining with each
other. Also, we assume that a firm facing a financial crisis will either
continue (i.e., meet its current obligations in full) or be liquidated. Reorganization
is ruled out