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
April 15, 2013
AFA 2011 Denver Meetings Paper
Using novel data that has complete coverage of individual claims for 136 Chapter 11 bankruptcy protection filings and that includes detailed information on claims transfers, we provide the first empirical insight on how a firm’s ownership changes during the bankruptcy process and how these changes impact bankruptcy outcomes. Pre-bankruptcy ownership concentration is important for the coordination of a prearranged bankruptcy filing and is associated with a faster bankruptcy resolution and a higher likelihood of a successful reorganization. However, as the trading of claims in bankruptcy concentrates ownership further — in particular, through consolidation of ownership by hedge funds and other active investors — the probability of liquidation increases and recovery rates decrease.
Number of Pages in PDF File: 67
Keywords: Bankruptcy, Claims trading, Restructuring, Capital structure
JEL Classification: G23, G32, G33, G34working papers series
Date posted: March 19, 2010 ; Last revised: May 1, 2013
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