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Bargaining and the Division of Value in Corporate Reorganization

Lucian A. Bebchuk
Harvard University - Harvard Law School; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Howard F. Chang
University of Pennsylvania Law School

Journal of Law, Economics and Organization, Vol. 8, pp. 253-279, 1992
Harvard Law and Economics Discussion Paper No. 80

Abstract:
This paper develops a sequential bargaining model of the negotiations in corporate reorganizations under Chapter 11. We identify the expected outcome of the bargaining process and examine the effects of the legal rules that shape the bargaining. We determine how much value equityholders and debtholders receive under the Chapter 11 process, and compare the value obtained by each class with the "contractual right" of that class. We identify and analyze three reasons that the equityholders can expect to obtain some value even when the debtholders are not paid in full. Finally, we show how the features of the reorganization process and of the company filing under Chapter 11 affect the division of value, and in this way we provide several testable predictions.

Accepted Paper Series

Date posted: November 21, 2003 ; Last revised: May 07, 2009

Suggested Citation

Bebchuk, Lucian A. and Chang, Howard F., Bargaining and the Division of Value in Corporate Reorganization (1992). Journal of Law, Economics and Organization, Vol. 8, pp. 253-279, 1992; Harvard Law and Economics Discussion Paper No. 80. Available at SSRN: http://ssrn.com/abstract=471820 or doi:10.2139/ssrn.471820

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Contact Information

Lucian A. Bebchuk (Contact Author) Harvard University - Harvard Law School ( email ) Cambridge, MA 02138 United States 617-495-3138 (Phone) 617-496-3119 (Fax) HOME PAGE: http://www.law.harvard.edu/faculty/bebchuk/
National Bureau of Economic Research (NBER) 1050 Massachusetts Avenue Cambridge, MA 02138 United States
European Corporate Governance Institute (ECGI) c/o ECARES ULB CP 114 B-1050 Brussels Belgium
Howard F. Chang University of Pennsylvania Law School ( email ) 3400 Chestnut Street Philadelphia, PA 19104-6204 United States 215-573-8296 (Phone) 215-573-2025 (Fax)