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

63 Pages Posted: 24 Nov 2015 Last revised: 16 Feb 2020

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: May 14, 2018

Abstract

Past studies document large court valuation errors in Chapter 11 bankruptcy, which are often attributed to the lack of transparent market prices of the debtor’s securities. We document that the introduction of mandated public dissemination of over-the-counter corporate bond transactions through the TRACE platform has substantially reduced those misvaluations and virtually eliminated large wealth transfers between different claimants. The effects of dissemination are most pronounced for firms with fulcrum securities, which are actively traded around the court valuation dates and which receive a large proportion of the post emergence equity; dissemination has no impact when prices are stale.

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? (May 14, 2018). Finance Down Under 2017 Building on the Best from the Cellars of Finance; European Corporate Governance Institute – Finance Working Paper No. 655/2020. 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

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