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http://ssrn.com/abstract=1102366
 
 

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The Changing Nature of Chapter 11


Sreedhar T. Bharath


Arizona State University - W.P. Carey School of Business

Venkatesh Panchapagesan


The Goldman Sachs Group, Inc.

Ingrid M. Werner


The Ohio State University - Fisher College of Business

November 1, 2010

Fisher College of Business Working Paper No. 2008-03-003
Charles A. Dice Center WP No. 2008-4
EFA 2008 Athens Meetings Paper
AFA 2010 Atlanta Meetings Paper

Abstract:     
The U.S. Chapter 11 bankruptcy system has long been viewed as equity friendly, with absolute priority deviations (APD) in favor of equity holders occurring as often as in 75% of the cases in the 1980s. By contrast, based on a more recent and much larger sample of bankruptcies from the period 1991-2005 we document an average frequency of APDs of only 22%. Moreover, we find a secular decline in the frequency of APDs over our sample period. The time spent in bankruptcy has also declined steadily, from 23 months in the 1980s to 16 months after 2000. We argue and find evidence that innovations in the bankruptcy process, such as reliance on debtor-in-possession (DIP) financing and adoptions of key employee retention plans (KERPs) help explain this secular decline. We also find that APD are more likely when management has substantial share holdings in the firm. Collectively, these results suggest that Chapter 11 has become more creditor friendly in recent years.

Number of Pages in PDF File: 55

Keywords: Bankruptcy, APR violations, Chapter 11

JEL Classification: G33, G34, G12

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Date posted: March 6, 2008 ; Last revised: December 16, 2010

Suggested Citation

Bharath, Sreedhar T. and Panchapagesan, Venkatesh and Werner, Ingrid M., The Changing Nature of Chapter 11 (November 1, 2010). Fisher College of Business Working Paper No. 2008-03-003; Charles A. Dice Center WP No. 2008-4; EFA 2008 Athens Meetings Paper; AFA 2010 Atlanta Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1102366 or http://dx.doi.org/10.2139/ssrn.1102366

Contact Information

Sreedhar T. Bharath
Arizona State University - W.P. Carey School of Business ( email )
400 E. Lemon Street
Tempe, AZ 85287
United States
347-256-8784 (Phone)
Venkatesh (Venky) Panchapagesan
The Goldman Sachs Group, Inc. ( email )
85 Broad Street
New York, NY 10004
United States
Ingrid M. Werner (Contact Author)
The Ohio State University - Fisher College of Business ( email )
2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-292-6460 (Phone)
614-292-2418 (Fax)

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