Abstract

References (26)

Beta

Citations (38)

Beta

Download | Share | Email | Add to Briefcase | Buy Hard Copy

Information Problems, Conflicts of Interest and Asset Stripping: Chapter 11's Failure in the Case of Eastern Airlines

Lawrence A. Weiss
Georgetown University - Robert Emmett McDonough School of Business

Karen Hopper Wruck
Ohio State University - Fisher College of Business, Department of Finance

November 8, 1997

Harvard Business School Working Paper No. 97-013, and/or INSEAD Working Paper 96/48/AC

Abstract:
Eastern Airlines' bankruptcy illustrates the devastating effect of court-sponsored asset stripping-using creditors' collateral to invest in negative net present value "lottery ticket" investments-on firm value. During bankruptcy, Eastern's value dropped over 50%. We show that a substantial portion of this value decline occurred because an over- protective court insulated Eastern from market forces and allowed value-destroying operations to continue long after it was clear Eastern should be shut down. The failure of Eastern's bankruptcy demonstrates the importance of the court's role in protecting a distressed firm's assets, not only from a run by creditors, but also from overly optimistic managers.

JEL Classifications: G32, G33, G34, J51, J52

Working Paper Series

Date posted: September 23, 1996 ; Last revised: March 07, 1998

Suggested Citation

Weiss, Lawrence A. and Wruck, Karen Hopper, Information Problems, Conflicts of Interest and Asset Stripping: Chapter 11's Failure in the Case of Eastern Airlines (November 8, 1997). Harvard Business School Working Paper No. 97-013, and/or INSEAD Working Paper 96/48/AC. Available at SSRN: http://ssrn.com/abstract=60064 or doi:10.2139/ssrn.60064

Export to: Export Citation What's this?

Contact Information

Karen Hopper Wruck (Contact Author) Ohio State University - Fisher College of Business, Department of Finance ( email ) 2100 Neil Avenue Columbus, OH 43210-1144 United States 614-688-5443 (Phone) 614-292-2418 (Fax) HOME PAGE: http://www.cob.ohio-state.edu/~kwruck
Lawrence A. Weiss Georgetown University - Robert Emmett McDonough School of Business ( email ) 3700 O Street, NW Washington, DC 20057 United States 2026873802 (Phone)