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Asset Efficiency and Reallocation Decisions of Bankrupt Firms
Author(s) -
MAKSIMOVIC VOJISLAV,
PHILLIPS GORDON
Publication year - 1998
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/0022-1082.00063
Subject(s) - bankruptcy , incentive , insolvency , productivity , asset (computer security) , business , closure (psychology) , industrial organization , economics , monetary economics , finance , microeconomics , market economy , macroeconomics , computer security , computer science
This paper investigates whether Chapter 11 bankruptcy provides a mechanism by which insolvent firms are efficiently reorganized and the assets of unproductive firms are effectively redeployed. We argue that incentives to reorganize depend on the level of demand and industry conditions. Using plant‐level data, we find that Chapter 11 status is much less important than industry conditions in explaining the productivity, asset sales, and closure conditions of Chapter 11 bankrupt firms. This suggests that firms that elect to enter into Chapter 11 incur few real economic costs.