Do Market Prices Improve the Accuracy of Court Valuations in Chapter 11?

62 Pages Posted: 24 Nov 2015 Last revised: 18 Oct 2021

See all articles by Cem Demiroglu

Cem Demiroglu

Koc University, College of Administrative Sciences and Economics

Julian R. Franks

London Business School - Institute of Finance and Accounting; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Ryan Lewis

University of Colorado, Boulder

Date Written: October 18, 2021

Abstract

The average difference between the court value and post-emergence market value of newly issued stocks in Chapter 11 reorganizations exceeds 50%. We show that public dissemination of transactions in defaulted bonds reduces this difference by 23% and largely eliminates inter-claimant wealth transfers. The effects of dissemination are only significant when the bonds are sufficiently traded around the court valuation date, and when they receive significant amounts of post-emergence equity, indicating that the bond’s value is sensitive to the size and allocation of the pie. These findings imply that security prices have real effects: They improve the valuations of bankruptcy participants.

Keywords: Bankruptcy, Chapter 11, TRACE, Transparency, Bond, Dissemination

JEL Classification: G14, G18, G33, G34, K22

Suggested Citation

Demiroglu, Cem and Franks, Julian R. and Lewis, Ryan, Do Market Prices Improve the Accuracy of Court Valuations in Chapter 11? (October 18, 2021). Finance Down Under 2017 Building on the Best from the Cellars of Finance, European Corporate Governance Institute – Finance Working Paper No. 655/2020, Forthcoming Journal of Finance, Available at SSRN: https://ssrn.com/abstract=2693056 or http://dx.doi.org/10.2139/ssrn.2693056

Cem Demiroglu

Koc University, College of Administrative Sciences and Economics ( email )

Koc University
Sariyer
Istanbul, 34450
Turkey
90-212-338-1620 (Phone)
90-212-338-1653 (Fax)

HOME PAGE: http://https://sites.google.com/site/cemdemiroglu/

Julian R. Franks

London Business School - Institute of Finance and Accounting ( email )

Institute of Finance and Accounting
Sussex Place - Regent's Park
London NW1 4SA
United Kingdom
+44 20 7262 5050 x3449 (Phone)
+44 20 7724 3317 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: https://ecgi.global/

Ryan Lewis (Contact Author)

University of Colorado, Boulder ( email )

Boulder, CO 80309-0419
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
401
Abstract Views
2,493
rank
93,305
PlumX Metrics