The Ownership and Trading of Debt Claims in Chapter 11 Restructurings
Harvard University; National Bureau of Economic Research (NBER)
Benjamin Charles Iverson
Northwestern University - Kellogg School of Management
David C. Smith
University of Virginia - McIntire School of Commerce
AFA 2011 Denver Meetings Paper
Journal of Financial Economics (JFE), Forthcoming
Using a novel dataset that covers individual debt claims against 136 bankrupt U.S. companies and includes information on a subset of claims transfers, we provide new empirical insight regarding how a firm’s debt ownership relates to bankruptcy outcomes. Firms with higher debt concentration at the start of the case are more likely to file prearranged bankruptcy plans, to move quickly through the restructuring process, and to emerge successfully as independent going concerns. Moreover, higher ownership concentration within a debt class is associated with higher recovery rates to that class. Trading of claims during bankruptcy concentrates ownership further but this trading is not associated with subsequent improvements in bankruptcy outcomes and may, at the margin, increase the likelihood of liquidation.
Number of Pages in PDF File: 46
Keywords: Chapter 11; Ownership structure; Distressed debt; Trading in bankruptcy
JEL Classification: G23, G30, G33
Date posted: March 19, 2010 ; Last revised: March 17, 2015
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