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- Title
Does the Bond Market Predict Bankruptcy Settlements?
- Authors
Eberhart, Allan C.; Sweeney, Richard J.
- Abstract
This study shows the extent to which deviations from the absolute priority rule increase or decrease the bankruptcy emergence payoff to traded (i.e., usually junior claimants) bondholders. The data indicate that, on average, bondholders benefit, albeit slightly, from absolute priority rule (APR) violations. This paper also examines the degree to which the bond market, in the bankruptcy filing month, anticipates departures from the APR and other influences on the payoff to bondholders. In other words, we investigate the informational efficiency of the market for bankrupt bonds. Overall, despite the complex and lengthy nature of bankruptcy proceedings, the results support efficiency.
- Subjects
BANKRUPTCY; BONDHOLDERS; BONDS (Finance); BOND market; LIQUIDITY (Economics); MONEY market; BOND insurance; INVESTORS; BUSINESS failures; FINANCIAL crises
- Publication
Journal of Finance (Wiley-Blackwell), 1992, Vol 47, Issue 3, p943
- ISSN
0022-1082
- Publication type
Article
- DOI
10.1111/j.1540-6261.1992.tb04001.x