REORGANIZATION AND FINANCIAL DISTRESS: AN EMPIRICAL INVESTIGATION

Sudip Datta · Mai E. Iskandar‐Datta

53 citations0/0 files storedThe Journal of Financial Research

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Corporate Insolvency and Governance Corporate Finance and Governance Financial Distress and Bankruptcy Prediction

Abstract

Abstract Prior studies on financial distress focus on the restructuring of one aspect of the firm. By examining various forms of restructuring, we provide empirical evidence that asset restructuring and governance restructuring play significant roles before bankruptcy filing. Our analysis shows that financial restructuring before bankruptcy is influenced by the holdout problem among creditor groups. Evidence suggests that the fraudulent conveyance provision does not pose a serious impediment to divestitures during the two years before bankruptcy. The evidence also indicates that Chapter 11 reorganization is lenient toward management. Although Chapter 11 allows the firm to breach burdensome executory contracts with employees, our findings suggest that union busting is not an important part of the reorganization process. Finally, we identify various financial characteristics to predict the different types of restructuring a firm may undertake.

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References

1977Determinants of corporate borrowing 1993The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems 1992Liquidation Values and Debt Capacity: A Market Equilibrium Approach 1990Troubled debt restructurings 1990Bankruptcy, boards, banks, and blockholders 2004Investment–Cash Flow Sensitivities: Constrained versus Unconstrained Firms 1989Management turnover and financial distress 1994Anatomy of Financial Distress: An Examination of Junk-Bond Issuers

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2017Cure or curse: Does downsizing increase the likelihood of bankruptcy?2005Corporate Governance Factors and Auditor Going Concern Assessments 2009An Experimental Study of the Holdout Problem in a Multilateral Bargaining Game 2012Resolution of financial distress under Chapter 11 2021Adapting Altman's model to predict the performance of the Palestinian industrial sector 1999Sources of gains to shareholders from bankruptcy resolution

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