Continuation and liquidation timing: a pareto optimal approach

This paper highlights the nexus of interactions among financial, industrial and macroeconomic factors determining the Pareto optimal date in which the firm’s claimants stop collaborating and force the firm into liquidation. The condition for optimal liquidation time summarises the effects of volatility of the aggregate consumer income and the overall price level, demand elasticity, the industry’s concentration level and depreciation on the firm’s going-concern value. It also takes into account the effects of the firm’s level of indebtedness, forgone interest on alternative usage of the financial resources extended to the firm and the costs of risk bearing perceived by the firm’s claimants from continued collaboration.