TY - JOUR
T1 - Financial restructuring in fresh-start chapter 11 reorganizations
AU - Heron, Randall A.
AU - Lie, Erik
AU - Rodgers, Kimberly J.
PY - 2009/12
Y1 - 2009/12
N2 - 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.
AB - 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.
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U2 - 10.1111/j.1755-053X.2009.01054.x
DO - 10.1111/j.1755-053X.2009.01054.x
M3 - Article
AN - SCOPUS:73649145528
SN - 0046-3892
VL - 38
SP - 727
EP - 745
JO - Financial Management
JF - Financial Management
IS - 4
ER -