Articles

Value Destruction in the New Era of Chapter 11

V. CAPKUN, B. ADLER, L. WEISS

Journal of Law, Economics and Organization

April 2013, vol. 29, n°2, pp.461-483

Departments: Accounting & Management Control, GREGHEC (CNRS)


Over the past two decades, control over the US bankruptcy reorganization processhas shifted from a debtor's pre-bankruptcy managers to holders of secured claims. The result has been increased adherence to absolute priority and a harder landing for the debtors managers and shareholders. Because managers still make or can influence the decision whether or when to file a bankruptcy petition, we hypothesize that anticipation of bankruptcy under these new conditions will result in a delay in filing, increased leverage, increased secured debt, and a reduction of asset value for firms at the time they file. We present empirical evidence consistent with our hypotheses


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