Hedge Funds and Chapter 11

58 Pages Posted: 29 Oct 2009 Last revised: 20 Oct 2011

See all articles by Wei Jiang

Wei Jiang

Emory University Goizueta Business School; ECGI; NBER

Kai Li

University of British Columbia (UBC) - Sauder School of Business; Asian Bureau of Finance and Economic Research (ABFER); China Academy of Financial Research (CAFR); European Corporate Governance Institute (ECGI); Canadian Sustainable Finance Network (CSFN)

Wei Wang

Queen's University - Smith School of Business

Date Written: April 19, 2011

Abstract

This paper studies the presence of hedge funds in the Chapter 11 process and their effects on bankruptcy outcomes. Hedge funds strategically choose positions in the capital structure where their actions could have a bigger impact on value. Their presence, especially as unsecured creditors, helps balance power between the debtor and secured creditors. Their effect on the debtor manifests in higher probabilities of the latter’s loss of exclusive rights to file reorganization plans, CEO turnover, and adoptions of KERP, while their effect on secured creditors manifests in higher probabilities of emergence and payoffs to junior claims.

Keywords: Hedge funds, Chapter 11, Loan-to-own, APR deviation, Creditor rights

JEL Classification: G23, G30, G33

Suggested Citation

Jiang, Wei and Li, Kai and Wang, Wei, Hedge Funds and Chapter 11 (April 19, 2011). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1493966

Wei Jiang

Emory University Goizueta Business School ( email )

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ECGI ( email )

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Kai Li

University of British Columbia (UBC) - Sauder School of Business ( email )

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Canadian Sustainable Finance Network (CSFN) ( email )

Queens University
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Wei Wang (Contact Author)

Queen's University - Smith School of Business ( email )

Queen's University-Smith School of Business
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Kingston, Ontario K7L 3N6
Canada

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