A Theory of Workouts and the Effects of Reorganization Law
42 Pages Posted: 28 Dec 2006 Last revised: 15 Apr 2022
Date Written: May 1991
Abstract
We present a model of a financially distressed firm with outstanding bank debt and public debt. Coordination problems among public debtholders introduce investment inefficiencies in the workout process. In most cases, these inefficiencies are not mitigated by the ability of firms to buy back their public debt with cash and other securities--the only feasible way that firms can restructure their public debt. We show that Chapter 11 reorganization law increases investment and we characterize the types of corporate financial structures for which this increased investment enhances efficiency.
Suggested Citation: Suggested Citation
Do you want regular updates from SSRN on Twitter?
Paper statistics
Recommended Papers
-
Debt and Seniority: An Analysis of the Role of Hard Claims in Constraining Management
By Oliver Hart and John Moore
-
Corporate Financial Structure and Managerial Incentives
By Sanford J. Grossman and Oliver Hart
-
Theories of Optimal Capital Structure: A Managerial Discretion Perspective
By Oliver Hart
-
Optimal Licensing Contracts and the Value of a Patent
By Can Erutku and Yves Richelle
-
Licensing a New Product with Non-Linear Contracts
By Can Erutku and Yves Richelle
-
Efficient Contract Design in Multi-Principal Multi-Agent Supply Chains
By Thomas A. Weber and Hongxia Xiong
-
Second-Degree Price Discrimination in the Presence of Positive Network Effects