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- Title
Financial Restructuring in Fresh-Start Chapter 11 Reorganizations.
- Authors
Heron, Randall A.; Lie, Erik; Rodgers, Kimberly J.
- Abstract
We find that firms substantially reduce their debt burden in “fresh-start” Chapter 11 reorganizations, yet they emerge with higher debt ratios than what is typical in their respective industries. While cross-sectional regressions reveal that post-reorganization debt ratios are more in line with the predictions of the static trade-off theory, they also reveal that pre-reorganization debt ratios affect post-reorganization debt ratios. Collectively, these results suggest that impediments in Chapter 11 prevent firms from completely resetting their capital structures. We also find that firms that reported positive operating income leading up to Chapter 11 emerge faster, suggesting that it is quicker to remedy strictly financial distress than economic distress.
- Subjects
CORPORATE reorganizations; BANKRUPTCY; BUSINESS enterprises; CORPORATE debt; FINANCIAL performance; CAPITAL structure; WORKING capital; OPERATING ratios; CROSS-sectional method
- Publication
Financial Management (Wiley-Blackwell), 2009, Vol 38, Issue 4, p727
- ISSN
0046-3892
- Publication type
Article
- DOI
10.1111/j.1755-053X.2009.01054.x