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http://ssrn.com/abstract=60064
 
 

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


Lawrence A. Weiss


Tufts University - The Fletcher School

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.

Number of Pages in PDF File: 47

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

working papers series


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Date posted: September 23, 1996  

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 http://dx.doi.org/10.2139/ssrn.60064

Contact Information

Lawrence A. Weiss
Tufts University - The Fletcher School ( email )
Medford, MA 02155
United States
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

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References:  26
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