Valuation of Bankrupt Firms

Posted: 14 Oct 1999

See all articles by Stuart C. Gilson

Stuart C. Gilson

Harvard Business School - Finance Unit

Edith S. Hotchkiss

Boston College - Carroll School of Management

Richard S. Ruback

Harvard Business School

Multiple version iconThere are 3 versions of this paper

Abstract

This study compares the market value of firms that reorganize in bankruptcy with estimates of value based on management's published cash flow projections. We estimate firm values using models that have been shown in other contexts to generate relatively precise estimates of value. We find that these methods generally yield unbiased estimates of value, but the dispersion of valuation errors is very wide?the sample ratio of estimated value to market value varies from below 20% to over 250%. Cross-sectional analysis indicates that the variation in these errors is related to empirical proxies for claimholders' incentives to overstate or understate the firm's value.

JEL Classification: G31, G32

Suggested Citation

Gilson, Stuart C. and Hotchkiss, Edith S. and Ruback, Richard S., Valuation of Bankrupt Firms. Review of Financial Studies. Available at SSRN: https://ssrn.com/abstract=181990

Stuart C. Gilson

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
(617) 495-6243 (Phone)
(617) 496-8443 (Fax)

Edith S. Hotchkiss (Contact Author)

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Department of Finance Fulton Hall, Room 330
Chestnut Hill, MA 02467
United States
617-552-3240 (Phone)
617-552-0431 (Fax)

Richard S. Ruback

Harvard Business School ( email )

Boston, MA 02163
United States
617-495-6422 (Phone)
617-496-8443 (Fax)

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