Claimholder Incentive Conflicts in Reorganization: The Role of Bankruptcy Law

Brown, David T.

doi:10.1093/rfs/2.1.109

Cited by 146 publications

(86 citation statements)

References 15 publications

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“…Although an efficient system leads to quick solutions to the problems, this is often, especially for the larger bankruptcies, not easy to achieve (Bris et al 2006;Weiss 1990). As the problems can be financially and economically oriented, the decision-making processes will be driven by rules in the bankruptcy system and will be tainted by conflicts of interests of participants (Baird 1996;Brown 1989;Maksimovic and Phillips 1998). These conflicts depend on the contractual rights of participants and associated negotiation power.…”

Section: Bankruptcy Theorymentioning

confidence: 99%

Costs and recovery rates in the Dutch liquidation-based bankruptcy system

Couwenberg

Jong

2008

Eur J Law Econ

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We present evidence on the efficiency of the resolution of financial distress in bankruptcy in The Netherlands. Direct costs average 16%, firm recovery 37% and bank debt recovery 80%. The direct costs are lower in larger firms and in firms with more bank debt. Costs increase with the time it takes to sell assets. Firm recovery is influenced by asset structure, capital structure and to a lesser extent Dutch legal variables. However, the opportunity to continue operations in bankruptcy is chosen by about half the firms and this has a positive effect on recoveries.

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Section: Bankruptcy Theorymentioning

confidence: 99%

Costs and recovery rates in the Dutch liquidation-based bankruptcy system

Couwenberg

Jong

2008

Eur J Law Econ

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“…In these works, renegotiations are mod- The game theoretic modelling of a legal bankruptcy procedure requires a different specification, however. Indeed, Brown (1989) and Gertner and Scharfstein (1991) argue that firms in financial distress will cease private negotiations and file bankruptcy when hold-out problems are severe -a view empirically supported by Gilson, John and Lang (1990) and Datta and Iskandar-Datta (1995). Consequently, it seems more appropriate to appeal to non-cooperative game theory to address the issue of renegotiations under legal bankruptcy.…”

Section: Introductionmentioning

confidence: 99%

Game theoretic analysis of negotiations under bankruptcy

Annabi

Breton

François

2012

European Journal of Operational Research

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Abstract:We extend the contingent claims framework for the levered firm in explicitly modeling the resolution of financial distress under formal bankruptcy as a non-cooperative game between claimants under the supervision of the bankruptcy judge. The identity of the class of claimants proposing the first reorganization plan is found to be a key determinant of the likelihood of liquidation and of the renegotiated value of claims. Our quantitative results confirm the economic intuition that a bankruptcy design must tradeoff the initial priority of claims with the viability of reorganized firms.

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“…Several recent papers focus on con icts arising in reorganization and on the importance of bargaining on the outcome of nancial distress. Brown 1989, Giammarino 1989, Bebchuk and Chang 1992, Gilson, John, and Lang 1990, Gertner and Scharfstein 1991, White 1994, and Asquith, Gertner, and Scharfstein 1994 examine how con icts between the rm and its creditors and between groups of creditors are resolved through bargaining. Data support the notion that creditors play a k ey role in bankruptcy: roughly 90 percent of reorganization plans are not con rmed in the U.S. Flynn, 1989 and, in Canada, about 25 percent of reorganization plans are rejected by creditors Fisher and Martel, 1994b;Martel, 1994. This article presents empirical evidence on the role of creditors in nancial reorganization.…”

Section: Introductionmentioning

confidence: 99%

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

Fisher

Martel

1995

The Journal of Law, Economics, and Organization

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Montréal Décembre 1994 Ce document est publié dans l' intention de rendre accessible les résultats préliminaires de la recherche effectuée au CIRANO, afin de susciter des échanges et des suggestions. Les idées et les opinions émises sont sous l' unique responsabilité des auteurs, et ne représentent pas nécessairement les positions du CIRANO ou de ses partenaires. This paper presents preliminary research carried out at CIRANO and aims to encourage discussion and comment. The observations and viewpoints expressed are the sole responsibility of the authors. They do not necessarily represent positions of CIRANO or its partners. 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.Ce document a pour but détudier le processus de réorganisation financière au Canada sur la base dun échantillon de 338 propositions de réorganisations commerciales au cours de la période [1978][1979][1980][1981][1982][1983][1984][1985][1986][1987]. Les données démontrent que 25 % des propositions sont rejetées par les créanciers non-garantis et quenviron 20 % des propositions acceptées résultent éventuellement en un échec. Une analyse du comportement des créanciers lors du vote sur une proposition génère deux résultats intéressants. Premièrement, la probabilité dacceptation dune proposition augmente avec la proportion des paiements comptants fait aux créanciers. Lutilisation de paiements comptants est interprêtée comme un signal quand à la viabilité dune firme. Deuxièmement, la probabilité dacceptation dune proposition augmente avec la proportion des créances garanties à lintérieur de la firme. Ce résultat supporte la thèse à leffet que les banques possèdent de linformation privilégiée sur la viabilité des entreprises et fournit une nouvelle évidence quant au rôle des banques dans la transmission de cette information vers les créanciers non-garantis.

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Claimholder Incentive Conflicts in Reorganization: The Role of Bankruptcy Law

Cited by 146 publications

References 15 publications

Costs and recovery rates in the Dutch liquidation-based bankruptcy system

Costs and recovery rates in the Dutch liquidation-based bankruptcy system

Game theoretic analysis of negotiations under bankruptcy

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

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