The Evolution of Valuation in Bankruptcy

Michael Simkovic, The Evolution of Valuation in Bankruptcy, 91 Am. Bankr. L.J. 301 (2017)

Seton Hall Public Law Research Paper

8 Pages Posted: 19 Jul 2016 Last revised: 17 Sep 2017

See all articles by Michael Simkovic

Michael Simkovic

University of Southern California Gould School of Law; University of Southern California - Marshall School of Business

Date Written: July 16, 2016

Abstract

Financial analyses such as valuation, solvency and capital adequacy play a crucial role in bankruptcy. Over the course of the 20th century, methods of financial analysis in bankruptcy have shifted from earnings multiples to discounted cash flow (DCF) and recently to market-based approaches such as auctions, market pricing of equity and unsecured debt, and credit spreads. Each shift in bankruptcy court practice followed shifts in financial services industry practice and developments in academic finance. Bankruptcy courts shifted gradually, often several decades after the financial community. Newer methods encountered resistance and skepticism, and older methods continued to be used by courts in conjunction with newer methods for many years. The overall pattern reflects a movement toward greater financial and quantitative sophistication by bankruptcy courts and practitioners and seems to be driven by a desire for greater accuracy and objectivity.

Note: The final version of this article was published as: Michael Simkovic, The Evolution of Valuation in Bankruptcy, 91 Am. Bankr. L.J. 301 (2017).

Keywords: bankruptcy, 363 sale, reorganization, solvency, adequate capital, discounted cash flow, capitalization rate, multiples, comparable companies, comparable transactions, credit spread, probability of default, credit default swap, corporate bond, credit derivative, auction, VFB, Iridium, Tousa

JEL Classification: A12, B15, B16, B26, D81, G12, G13, G18, G33, G34, N21, N22

Suggested Citation

Simkovic, Michael, The Evolution of Valuation in Bankruptcy (July 16, 2016). Michael Simkovic, The Evolution of Valuation in Bankruptcy, 91 Am. Bankr. L.J. 301 (2017); Seton Hall Public Law Research Paper. Available at SSRN: https://ssrn.com/abstract=2810622 or http://dx.doi.org/10.2139/ssrn.2810622

Michael Simkovic (Contact Author)

University of Southern California Gould School of Law ( email )

699 Exposition Boulevard
Los Angeles, CA 90089
United States

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

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