The Creditors' Financial Reorganization Decision: New Evidence from Canadian Data

Posted: 10 May 2000

Abstract

The paper examines a data set of 338 randomly selected financial reorganization plans filed in Canada during the period 1978-87. Creditors reject roughly 25% of reorganization plans, while about 20% of the plans creditors accept fail before completion, providing evidence of filtering failure in the reorganization process. A logit model of the creditors' reorganization decision produces two interesting results. Plans offering a high proportion of cash payments are more likely to be accepted by creditors, which we interpret as evidence that cash is a signal of financial viability. Plans with high ratios of secured debt are more likely to be accepted, which we interpret as evidence that secured creditors with insider knowledge signal information about the financial viability of firms to unsecured creditors

JEL Classification: K2

Suggested Citation

Fisher, Timothy and Martel, Jocelyn, The Creditors' Financial Reorganization Decision: New Evidence from Canadian Data. Available at SSRN: https://ssrn.com/abstract=6171

Timothy Fisher (Contact Author)

Wilfrid Laurier University ( email )

Economics
Waterloo, Ontario N2L 3C5
Canada
519-884-0710 (2671) (Phone)
519-888-1015 (Fax)

Jocelyn Martel

ESSEC Business School ( email )

Avenue Bernard Hirsch B.P. 50105
Cergy-Pontoise, 95021
France
33 1 34 43 33 21 (Phone)

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