'Warm with Sunny Skies': Disclosure Statement Forecasts

41 Pages Posted: 11 May 2000

See all articles by Brian L. Betker

Brian L. Betker

Saint Louis University

Stephen P. Ferris

University of Missouri at Columbia - Department of Finance

Robert M. Lawless

University of Illinois College of Law

Date Written: June 1999

Abstract

This Article examines the quality of forecasts in bankruptcy disclosure statements. Required by the Bankruptcy Code, disclosure statements seek to provide creditors with adequate information to cast an informed vote on a chapter 11 plan of reorganization. In addition, disclosure statements are theoretically important devices to narrow some of the information asymmetries that a bankruptcy proceeding exacerbates. We find that chapter 11 debtors forecast postbankruptcy business earnings capability with significant error and that bankruptcy disclosure statements are systematically over-optimistic in their forecasts of postbankruptcy performance. Furthermore, we find negative relations between the forecast error and the size of the firm as well as the firm's capital intensity. We do not find significant relationships between forecast error and changes in corporate governance, at either the CEO or board level.

JEL Classification: G33, K22, K41

Suggested Citation

Betker, Brian L. and Ferris, Stephen P. and Lawless, Robert M., 'Warm with Sunny Skies': Disclosure Statement Forecasts (June 1999). Available at SSRN: https://ssrn.com/abstract=177508 or http://dx.doi.org/10.2139/ssrn.177508

Brian L. Betker

Saint Louis University ( email )

3674 Lindell Blvd
St. Louis, MO 63108-3397
United States
314-977 7154 (Phone)
314-977 3897 (Fax)

Stephen P. Ferris

University of Missouri at Columbia - Department of Finance ( email )

214 Middlebush Hall
Columbia, MO 65211
United States
573-882-6272 (Phone)
573-884-6296 (Fax)

Robert M. Lawless (Contact Author)

University of Illinois College of Law ( email )

504 E. Pennsylvania Avenue
Champaign, IL 61820
United States

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