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Bargaining and the Division of Value in Corporate ReorganizationLucian A. BebchukHarvard Law School; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI) Howard F. ChangUniversity of Pennsylvania Law School 1992 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.
Number of Pages in PDF File: 33 Accepted Paper SeriesDate posted: November 21, 2003 ; Last revised: May 7, 2009Suggested CitationContact Information
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