Value Destruction in the New Era of Chapter 11
Barry E. Adler
New York University School of Law
HEC Paris - Accounting and Management Control Department
Lawrence A. Weiss
Tufts University - The Fletcher School
February 6, 2012
Journal of Law, Economics, & Organization (2013) 29 (2): 461-483
Over the past two decades, control over the US bankruptcy reorganization process has shifted from a debtor's pre-bankruptcy managers to holders of secured claims. The result has been increased adherence to absolute priority and a harder landing for the debtor’s managers and shareholders. Because managers still make or can influence the decision whether or when to file a bankruptcy petition, we hypothesize that anticipation of bankruptcy under these new conditions will result in a delay in filing, increased leverage, increased secured debt, and a reduction of asset value for firms at the time they file. We present empirical evidence consistent with our hypotheses.
Number of Pages in PDF File: 36
Keywords: Bankruptcy, Incentives, Bankruptcy Initiation, Economic distress, Financial distress
JEL Classification: D21, G33, K22
Date posted: October 31, 2008 ; Last revised: June 28, 2014
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