Abstract

http://ssrn.com/abstract=890693
 
 

References (43)



 
 

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Financial Restructuring in Fresh Start Chapter 11 Reorganizations


Randall A. Heron


Indiana University - Kelley School of Business - Department of Finance

Erik Lie


University of Iowa - Henry B. Tippie College of Business

Kimberly Rodgers Cornaggia


American University - Kogod School of Business

June 23, 2008

Financial Management Vol. 38. No. 4. pp. 727-745.

Abstract:     
We find that firms substantially reduce their debt burden in “fresh-start” Chapter 11 reorganizations, yet they emerge with higher debt ratios than what is typical in their respective industries. While cross-sectional regressions reveal that post-reorganization debt ratios are more in line with the predictions of the static-tradeoff theory, they also reveal that pre-reorganization debt ratios affect post-reorganization debt ratios. Collectively, these results suggest that impediments in Chapter 11 prevent firms from completely resetting their capital structures. We also find that firms that reported positive operating income leading up to Chapter 11 emerge faster, suggesting that it is quicker to remedy strictly financial distress than economic distress.

Number of Pages in PDF File: 35

Keywords: Chapter 11, Capital Structure, Fresh Start, Restructuring

JEL Classification: G32, G33

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Date posted: March 21, 2006 ; Last revised: May 14, 2014

Suggested Citation

Heron, Randall A. and Lie, Erik and Cornaggia, Kimberly Rodgers, Financial Restructuring in Fresh Start Chapter 11 Reorganizations (June 23, 2008). Financial Management Vol. 38. No. 4. pp. 727-745.. Available at SSRN: http://ssrn.com/abstract=890693 or http://dx.doi.org/10.2139/ssrn.890693

Contact Information

Randall A. Heron (Contact Author)
Indiana University - Kelley School of Business - Department of Finance ( email )
801 W. Michigan Street
Indianapolis, IN 46202
United States
317-274-4984 (Phone)
317-274-3312 (Fax)
Erik Lie
University of Iowa - Henry B. Tippie College of Business ( email )
108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States
Kimberly Rodgers Cornaggia
American University - Kogod School of Business ( email )
4400 Massachusetts Avenue NW
Washington, DC 20816-8044
United States
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