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Resolution of Financial Distress : Debt Restructurings via Chapter 11, Prepackaged Bankruptcies, and Workouts

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Author Info

  • Sris Chatterjee
  • Upinder S. Dhillon
  • Gabriel G. Ramirez

Abstract

This paper examines empirically a comprehensive sample of firms undertaking Chapter 11 reorganizations, prepackaged bankruptcies, and workouts. We provide evidence that the restructuring decision depends on the degree of the firm's leverage, the severity of its liquidity crisis, the extent of creditor's coordination, and the magnitude of its economic distress. The results complement theoretical models of debt restructuring choices. We find that economically viable firms prefer workouts. Further, prepackaged bankruptcies are used by firms that are economically viable but face immediate liquidity problems.

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Bibliographic Info

Article provided by Financial Management Association in its journal Financial Management.

Volume (Year): 25 (1996)
Issue (Month): 1 (Spring)
Pages:
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Handle: RePEc:fma:fmanag:chatterjee96

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Cited by:
  1. Ying Yan, 1996. "Credit Rationing, Bankruptcy Cost, and Optimal Debt Contract for Small Business," Finance 9612003, EconWPA.
  2. Gary Cook & Keith Pond, 2006. "Explaining the choice between alternative insolvency regimes for troubled companies in the UK and Sweden," European Journal of Law and Economics, Springer, vol. 22(1), pages 21-47, July.
  3. John Armour, 2006. "Should we redistribute in insolvency," ESRC Centre for Business Research - Working Papers wp319, ESRC Centre for Business Research.
  4. John Armour & B.R. Cheffins & D.A. Skeel Jr., 2002. "Corporate Ownership Structure and the Evolution of Bankruptcy Law in the US and UK," ESRC Centre for Business Research - Working Papers wp226, ESRC Centre for Business Research.
  5. Ying Yan, 1997. "Credit rationing, bankruptcy cost, and the optimal debt contract for small business," Working Paper 9702, Federal Reserve Bank of Cleveland.

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