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Security Pricing and Deviations from the Absolute Priority Rule in Bankruptcy Proceedings
Author(s) -
EBERHART ALLAN C.,
MOORE WILLIAM T.,
ROENFELDT RODNEY L.
Publication year - 1990
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/j.1540-6261.1990.tb03723.x
Subject(s) - bankruptcy , equity (law) , shareholder , absolute (philosophy) , economics , sample (material) , financial economics , value (mathematics) , actuarial science , business , finance , law , statistics , mathematics , chemistry , corporate governance , political science , philosophy , epistemology , chromatography
Claims ultimately awarded to shareholders of firms in reorganization were examined for a sample of 30 filings under the 1978 Bankruptcy Reform Act. We measured the amount paid to shareholders in excess of that which they would have received under the absolute priority rule and found that this amount represents, on average, 7.6% of the total awarded to all claimants. Evidence is also reported that common share values reflect a significant proportion of value ultimately received in violation of absolute priority, suggesting that deviations from the rule were expected by the equity markets.