Governance in Financial Distress and Bankruptcy
Northwestern University School of Law
Edith S. Hotchkiss
Boston College - Carroll School of Management
Karin S. Thorburn
Norwegian School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)
November 15, 2012
Oxford Handbook of Corporate Governance, Forthcoming
Northwestern Public Law Research Paper No. 12-37
This chapter, for the Oxford Handbook of Corporate Governance, provides a survey of law, economics, and finance scholarship at the intersection of corporate governance and financial distress. In financial distress, both inside and outside of bankruptcy court, formal and informal control rights are paramount. Thus, we organize our review around the major constituencies that exercise control rights in distressed firms: shareholders, managers and boards; senior and junior creditors; and the law, courts and judges. Broadly, our review suggests that an understanding of the incentives of these constituencies is crucial to explaining outcomes. Our review also documents the paradigm shift in the bankruptcy literature, away from the “safe haven” view of Chapter 11 as a slow, manager and shareholder-controlled reorganization process. Chapter 11 case outcomes are increasingly steered by sophisticated activist investors, generating faster resolutions that are more creditor-controlled. We suggest some directions for future research in light of these developments.
Number of Pages in PDF File: 44
Keywords: bankruptcy, reorganization, corporate finance, corporate governance, Chapter 11
JEL Classification: G30, G33, G34Accepted Paper Series
Date posted: November 16, 2012 ; Last revised: December 29, 2012
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