Do Market Prices Improve the Accuracy of Court Valuations in Chapter 11?
63 Pages Posted: 24 Nov 2015 Last revised: 16 Feb 2020
Date Written: May 14, 2018
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
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