Hostname: page-component-586b7cd67f-r5fsc Total loading time: 0 Render date: 2024-12-05T03:18:31.205Z Has data issue: false hasContentIssue false
  • English
  • Français

Chapter 11: Duration, Outcome, and Post-Reorganization Performance

Published online by Cambridge University Press:  06 April 2009

Diane K. Denis  and
Kimberly J. Rodgers
Diane K. Denis
Affiliation:
[email protected], Krannert Graduate School of Management, Purdue University, 403W. State St., West Lafayette, IN 47907
Kimberly J. Rodgers
Affiliation:
[email protected], Leonard N. Stern School of Business, New York University, 44 West Fourth St., New York, NY 10012
Get access Rights & Permissions [Opens in a new window]

Abstract

We find that among firms that file Chapter 11 those that are smaller have better operating performance, and are in higher operating margin industries spend less time in Chapter 11. Firms are more likely to emerge as going concerns and to achieve positive post reorganization profitability if they significantly reduce assets and liabilities while in Chapter 11. Higher pre-bankruptcy industry-adjusted operating margins and improvements in margin are associated with post-reorganization profitability but do not impact the decision to reorganize. These results reveal characteristics and actions associated with successful reorganizations and, furthermore, suggest that Chapter 11 allows promising firms to successfully reorganize.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 42 , Issue 1 , March 2007 , pp. 101 - 118
Copyright
Copyright © School of Business Administration, University of Washington 2007

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Alderson, M., and Betker, B.. “Assessing Postbankruptcy Performance: An Analysis of Reorganized Firms' Cash Flows.” Financial Management, 28 (1999), 68–82.Google Scholar
Andrade, G., and Kaplan, S. N.. “How Costly is Financial (Not Economic) Distress? Evidence from Highly Leveraged Transactions that Became Distressed.” Journal of Finance, 53 (1998), 1443–1494.CrossRefGoogle Scholar
Baird, D. G. “The Uneasy Case for Corporate Reorganizations.” Journal of Legal Studies, 15 (1986), 127–147.CrossRefGoogle Scholar
Bradley, M., and Rosenzweig, M.. “In Defense of Abolishing Chapter 11.” Working Paper, Duke University (1995).Google Scholar
Chatterjee, S.; Dhillon, U. S.; and Ramirez, G. G.. “Resolution of Financial Distress: Debt Restructurings Via Chapter 11, Prepackaged Bankruptcies, and Workouts.” Financial Management, 25 (1996), 5–18.CrossRefGoogle Scholar
Dahiya, S.; John, K.; Puri, M.; and Ramirez, G.. “Debtor-in-Possession Financing and Bankruptcy Resolution: Empirical Evidence.” Journal of Financial Economics, 69 (2003), 259–280.Google Scholar
Gilson, S. C. “Transactions Costs and Capital Structure Choice: Evidence from Financially Distressed Firms.” Journal of Finance, 52 (1997), 161–196.CrossRefGoogle Scholar
Hotchkiss, E. S. “Postbankruptcy Performance and Management Turnover.” Journal of Finance, 50 (1995), 3–21.CrossRefGoogle Scholar
Jensen, M. C. “Corporate Control and the Politics of Finance.” Journal of Applied Corporate Finance, 4 (1991), 13–33.CrossRefGoogle Scholar
Kahl, M. “Economic Distress, Financial Distress, and Dynamic Liquidation.” Journal of Finance, 57 (2002), 135–168.CrossRefGoogle Scholar
LoPucki, L. M., and Whitford, W. C.. “Patterns in the Bankruptcy Reorganization of Large, Publicly Held Companies.” Cornell Law Review, 78 (1993), 597–618.Google Scholar
Maksimovic, V., and Phillips, G.. “Asset Efficiency and Reallocation Decisions of Bankrupt Firms.” Journal of Finance, 53 (1998), 1495–1532.CrossRefGoogle Scholar
Mooradian, R. M. “The Effect of Bankruptcy Protection on Investment: Chapter 11 as a Screening Device.” Journal of Finance, 49 (1994), 1403–1430.CrossRefGoogle Scholar
Weiss, L. A., and Wruck, K. H.. “Information Problems, Conflicts of Interest and Asset Stripping: Chapter 11's Failure in the Case of Eastern Airlines.” Journal of Financial Economics, 48 (1998), 55–97.CrossRefGoogle Scholar
Wruck, K. H. “Financial Distress, Reorganization, and Organizational Efficiency.” Journal of Financial Economics, 27 (1990), 419–446.Google Scholar