BROWSE

Absolute Priority

What is an 'Absolute Priority'

An absolute priority is a rule that stipulates the order of payment - creditors before shareholders - in the event of liquidation. The absolute priority rule is used in bankruptcies to decide what portion of payment will be received by which participants. Debts to creditors will be paid first and shareholders (partial owners) divide what remains.

Explaining 'Absolute Priority'

Absolute priority specifies the pecking order. Senior creditors always get first grabs at the proceeds from liquidation, and shareholders are the last to get paid. This rule provides a degree of protection to creditors in the event of insolvency or death. The division of benefits (cash) is not always the result of a bankruptcy. It can also occur due to the liquidation of assets in order to pay down a company's liabilities.


Further Reading


Ex ante costs of violating absolute priority in bankruptcy
onlinelibrary.wiley.com [PDF]
… and Finance, Harvard Law School; Research Associate, National Bureau of Economic Research … Science Foundation and the Harvard John M. Olin Center for Law, Economics, and Business … of companies in financial distress to extract deviations from absolute priority (AP)‐that …

Absolute priority rule violations and risk incentives for financially distressed firmsAbsolute priority rule violations and risk incentives for financially distressed firms
www.jstor.org [PDF]
… and Finance, Harvard Law School; Research Associate, National Bureau of Economic Research … Science Foundation and the Harvard John M. Olin Center for Law, Economics, and Business … of companies in financial distress to extract deviations from absolute priority (AP)‐that …

Management's incentives, equity's bargaining power, and deviations from absolute priority in Chapter 11 bankruptciesManagement's incentives, equity's bargaining power, and deviations from absolute priority in Chapter 11 bankruptcies
www.jstor.org [PDF]
… and Finance, Harvard Law School; Research Associate, National Bureau of Economic Research … Science Foundation and the Harvard John M. Olin Center for Law, Economics, and Business … of companies in financial distress to extract deviations from absolute priority (AP)‐that …

Agency problems of debt, convertible securities, and deviations from absolute priority in bankruptcyAgency problems of debt, convertible securities, and deviations from absolute priority in bankruptcy
www.journals.uchicago.edu [PDF]
… and Finance, Harvard Law School; Research Associate, National Bureau of Economic Research … Science Foundation and the Harvard John M. Olin Center for Law, Economics, and Business … of companies in financial distress to extract deviations from absolute priority (AP)‐that …

The importance of deviations from the absolute priority rule in Chapter 11 bankruptcy proceedingsThe importance of deviations from the absolute priority rule in Chapter 11 bankruptcy proceedings
www.jstor.org [PDF]
… and Finance, Harvard Law School; Research Associate, National Bureau of Economic Research … Science Foundation and the Harvard John M. Olin Center for Law, Economics, and Business … of companies in financial distress to extract deviations from absolute priority (AP)‐that …

Absolute priority rule violations, credit rationing, and efficiencyAbsolute priority rule violations, credit rationing, and efficiency
www.sciencedirect.com [PDF]
… and Finance, Harvard Law School; Research Associate, National Bureau of Economic Research … Science Foundation and the Harvard John M. Olin Center for Law, Economics, and Business … of companies in financial distress to extract deviations from absolute priority (AP)‐that …

Pricing the risk of recovery in default with absolute priority rule violationPricing the risk of recovery in default with absolute priority rule violation
www.sciencedirect.com [PDF]
… and Finance, Harvard Law School; Research Associate, National Bureau of Economic Research … Science Foundation and the Harvard John M. Olin Center for Law, Economics, and Business … of companies in financial distress to extract deviations from absolute priority (AP)‐that …

Bankruptcy, absolute priority, and the pricing of risky debt claimsBankruptcy, absolute priority, and the pricing of risky debt claims
www.sciencedirect.com [PDF]
… and Finance, Harvard Law School; Research Associate, National Bureau of Economic Research … Science Foundation and the Harvard John M. Olin Center for Law, Economics, and Business … of companies in financial distress to extract deviations from absolute priority (AP)‐that …

Much ado about nothing: Absolute priority deviations in chapter 11Much ado about nothing: Absolute priority deviations in chapter 11
www.jstor.org [PDF]
… and Finance, Harvard Law School; Research Associate, National Bureau of Economic Research … Science Foundation and the Harvard John M. Olin Center for Law, Economics, and Business … of companies in financial distress to extract deviations from absolute priority (AP)‐that …


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