Bargaining and the Division of Value in Corporate Reorganization

43 Pages Posted: 29 Dec 2006

See all articles by Lucian A. Bebchuk

Lucian A. Bebchuk

Harvard Law School; European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Howard F. Chang

University of Pennsylvania Law School

Multiple version iconThere are 2 versions of this paper

Date Written: February 1991

Abstract

This paper develops a sequential bargaining model of the negotiations in corporate reorganizations under Chapter 11. We identify the expected outcome of the bargaining process and examine the effects of the legal rules that shape the bargaining. We determine how much value equity holders and debt holders receive under the Chapter 11 process, and compare the value obtained by each class with the 'contractual right' of that class. We identify and analyze three reasons that the equity holders can expect to obtain some value even when the debt holders are not paid in full. Finally, we show how the features of the reorganization process and of the company filing under Chapter 11 affect the division of value, and in this way we provide several testable predictions.

Suggested Citation

Bebchuk, Lucian A. and Chang, Howard F., Bargaining and the Division of Value in Corporate Reorganization (February 1991). NBER Working Paper No. t0097, Available at SSRN: https://ssrn.com/abstract=579775

Lucian A. Bebchuk (Contact Author)

Harvard Law School ( email )

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National Bureau of Economic Research (NBER) ( email )

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Howard F. Chang

University of Pennsylvania Law School ( email )

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