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Do self-serving managers choose Chapter 11 filing over out-of-court restructuring?

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  • Dong-Kyoon Kim

Abstract

I investigate whether self-serving managers in financially distressed firms influence a firm’s decision on the choice of debt restructuring method. I show that there is a non-linear relationship between managerial ownership and the probability of Chapter 11 filing. I find that distressed firms are more likely to choose Chapter 11 with the increase of managerial ownership when managerial ownership is in the 5%–25% range. I also find a significant curvilinear relation between managerial ownership and the probability of Chapter 11. My results are consistent with the hypothesis that managerial ownership plays a significant role in corporate decisions. Copyright Academy of Economics and Finance 2006

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  • Dong-Kyoon Kim, 2006. "Do self-serving managers choose Chapter 11 filing over out-of-court restructuring?," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 30(1), pages 105-114, March.
    • Handle: RePEc:spr:jecfin:v:30:y:2006:i:1:p:105-114
    DOI: 10.1007/BF02834278
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    References listed on IDEAS

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    1. Sris Chatterjee & Upinder S. Dhillon & Gabriel G. Ramirez, 1996. "Resolution of Financial Distress : Debt Restructurings via Chapter 11, Prepackaged Bankruptcies, and Workouts," Financial Management, Financial Management Association, vol. 25(1), Spring.
    2. McConnell, John J. & Servaes, Henri, 1990. "Additional evidence on equity ownership and corporate value," Journal of Financial Economics, Elsevier, vol. 27(2), pages 595-612, October.
    3. Stuart C. Gilson, 1991. "Managing Default: Some Evidence On How Firms Choose Between Workouts And Chapter 11," Journal of Applied Corporate Finance, Morgan Stanley, vol. 4(2), pages 62-70, June.
    4. Brown, David T. & James, Christopher M. & Mooradian, Robert M., 1994. "Asset sales by financially distressed firms," Journal of Corporate Finance, Elsevier, vol. 1(2), pages 233-257, August.
    5. James, Christopher, 1995. "When Do Banks Take Equity in Debt Restructurings?," Review of Financial Studies, Society for Financial Studies, vol. 8(4), pages 1209-1234.
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