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REORGANIZATION AND FINANCIAL DISTRESS: AN EMPIRICAL INVESTIGATION
Author(s) -
Datta Sudip,
IskandarDatta Mai E.
Publication year - 1995
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.1995.tb00208.x
Subject(s) - restructuring , bankruptcy , divestment , financial distress , creditor , business , corporate governance , notice , empirical evidence , asset (computer security) , finance , accounting , financial system , debt , political science , philosophy , computer security , epistemology , computer science , law
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.