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Security Pricing and Deviations from the Absolute Priority Rule in Bankruptcy Proceedings

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Author Info
 Eberhart, Allan C
Moore, William T
Roenfeldt, Rodney L
Abstract

Claims ultimately awarded to shareholders of firms in reorganization were examined for a sample of thirty filings under the 1978 Bankruptcy Reform Act. The authors 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 percent 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. Copyright 1990 by American Finance Association.

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Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 45 (1990)
Issue (Month): 5 (December)
Pages: 1457-69
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Handle: RePEc:bla:jfinan:v:45:y:1990:i:5:p:1457-69

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  1. Michael J. Alderson & Brian L. Betker, . "Liquidation Versus Continuation: Did Reorganized Firms Do The Right Thing?," Research in Financial Economics 9512, Ohio State University. [Downloadable!]
  2. James R. Hines Jr., 1998. "Investment Ramifications of Distortionary Tax Subsidies," NBER Working Papers 6615, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. V. M. González-Méndez & Francisco González-Rodríguez, 2000. "Procedimientos de resolución de insolvencia financiera en España: costes de insolvencia y transferencia de riqueza," Investigaciones Economicas, Fundación SEPI, vol. 24(2), pages 357-384, May. [Downloadable!]
  4. Alexandros Benos & George Papanastasopoulos, 2005. "Extending the Merton Model: A Hybrid Approach to Assessing Credit Quality," Finance 0505020, EconWPA, revised 03 Jun 2005. [Downloadable!]
  5. Iryna V. Ivaschenko, 2003. "How Much Leverage is Too Much, or Does Corporate Risk Determine the Severity of a Recession?," IMF Working Papers 03/3, International Monetary Fund. [Downloadable!]
  6. Lucian Arye Bebchuk, 1998. "Chapter 11," NBER Working Papers 6473, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Jocelyn Martel, 1996. "Solutions au stress financier : Un survol de la littérature," CIRANO Working Papers 96s-03, CIRANO. [Downloadable!]
  8. Philippe Aghion & Oliver Hart & John Moore, 1992. "The Economics of Bankruptcy Reform," NBER Working Papers 4097, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Franken, S., 2003. "The debtor-oriented model versus the creditor-oriented model of corporate bankruptcy law : a US-Dutch comparison," Discussion Paper 14, Tilburg University, Tilburg Law and Economic Center. [Downloadable!]
  10. Timothy C. G. Fisher & Jocelyn Martel, 1996. "Should We Abolish Chapter 11 : Evidence from Canada," CIRANO Working Papers 96s-22, CIRANO. [Downloadable!]
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  11. Régis Blazy & Bertrand Chopard & Agnès Fimayer & Jean-Daniel Guigou, 2009. "Financial versus Social Efficiency of Corporate Bankruptcy Law: the French Dilemma?," Working Papers of BETA 2009-12, Bureau d'Economie Théorique et Appliquée, ULP, Strasbourg. [Downloadable!]
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  12. Filippo Ippolito, 2005. "Convertible Preferred Stock in Venture Capital Financing," OFRC Working Papers Series 2005fe12, Oxford Financial Research Centre. [Downloadable!]
  13. Alexander Dilger, 2006. "Forced to make mistakes: Reasons for complaining about Bebchuk's scheme and other market-oriented insolvency procedures," European Journal of Law and Economics, Springer, vol. 21(1), pages 79-94, January. [Downloadable!] (restricted)
  14. Lucian Arye Bebchuk, 2000. "Using Options to Divide Value in Corporate Bankruptcy," NBER Working Papers 7614, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  15. Drukarczyk, Jochen & Schöntag, Stefanie, 2006. "Insolvenzplan, optionsbasierte Lösungen, Verlustvorträge und vom Gesetzgeber verursachte Sanierungshemmnisse," Regensburger Diskussionsbeiträge zur Wirtschaftswissenschaft 414, University of Regensburg, Department of Economics. [Downloadable!]
  16. Per Stromberg, . "Conflicts of Interest and Market Illiquidity in Bankruptcy Auctions: Theory and Tests," CRSP working papers 459, Center for Research in Security Prices, Graduate School of Business, University of Chicago. [Downloadable!]
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  17. Araújo, Aloísio Pessoa de & Funchal, Bruno, 2005. "Past and Future of the Bankruptcy Law in Brazil and Latin America," Economics Working Papers (Ensaios Economicos da EPGE) 599, Graduate School of Economics, Getulio Vargas Foundation (Brazil). [Downloadable!]
  18. Haluk Unal & Dilip Madan & Levent Güntay, 2001. "Pricing the Risk of Recovery in Default with APR Violation," Center for Financial Institutions Working Papers 02-21, Wharton School Center for Financial Institutions, University of Pennsylvania. [Downloadable!]
  19. Michelle J. White, 2005. "Economic Analysis of Corporate and Personal Bankruptcy Law," NBER Working Papers 11536, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  20. Bharath, Sreedhar T. & Panchapegesan, Venky & Werner, Ingrid, 2007. "The Changing Nature of Chapter 11," Working Paper Series 2008-4, Ohio State University, Charles A. Dice Center for Research in Financial Economics. [Downloadable!]
  21. Jochen Bigus & Thomas Eger, . "Insolvenzrecht zwischen privatautonomer Gestaltung und öffentlicher Regulierung," German Working Papers in Law and Economics 2002-1-1047, Berkeley Electronic Press. [Downloadable!]
  22. Stanley D. Longhofer, 1994. "Bankruptcy rules and debt contracting: on the relative efficiency of absolute priority, proportionate priority, and first-come, first-served rules," Working Paper 9415, Federal Reserve Bank of Cleveland. [Downloadable!]
  23. Stanley D. Longhofer, 1997. "Absolute priority rule violations, credit rationing, and efficiency," Working Paper 9710, Federal Reserve Bank of Cleveland. [Downloadable!]
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