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Management's Incentives, Equity's Bargaining Power, and Deviations from Absolute Priority in Chapter 11 Bankruptcies

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Author Info
Betker, Brian L
Abstract

The author examines the determinants of equity's absolute priority deviation in seventy-five bankruptcies. Previous research emphasizes the shareholders' option to delay a reorganization. In practice, managers control this option, and agency problems between managers and shareholders can be severe in bankruptcy. Equity's bargaining power should depend on managers' incentives and creditor control over managers. Empirical evidence indicates that priority deviations are larger when the firm is closer to solvency, banks hold fewer claims, the chief executive officer (CEO) holds more shares, CEO pay and shareholder wealth are positively related, and the firm retains the exclusive right to propose a bankruptcy plan. Copyright 1995 by University of Chicago Press.

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Publisher Info
Article provided by University of Chicago Press in its journal Journal of Business.

Volume (Year): 68 (1995)
Issue (Month): 2 (April)
Pages: 161-83
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Handle: RePEc:ucp:jnlbus:v:68:y:1995:i:2:p:161-83

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Postal: The University of Chicago Press, Journals Division, P.O. Box 37005 Chicago, IL 60637
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  1. 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!]
    Other versions:
  2. Gordon M Phillips & Vojislav Maksimovic, 1996. "Efficiency of Bankrupt Firms and Industry Conditions: Theory and Evidence," Working Papers 96-12, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
  3. Jason Hsu & Jesus Saa-Requejo & Pedro Santa-Clara, 2003. "Bond Pricing with Default Risk," University of California at Los Angeles, Anderson Graduate School of Management 1245, Anderson Graduate School of Management, UCLA. [Downloadable!]
  4. Michelle J. White, 2005. "Economic Analysis of Corporate and Personal Bankruptcy Law," NBER Working Papers 11536, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. 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!]
  6. Alessandro Penati & Luigi Zingales, 1997. "Efficiency and Distribution in Financial Restructuring: The Case of the Ferruzzi Group," CRSP working papers 466, Center for Research in Security Prices, Graduate School of Business, University of Chicago. [Downloadable!]
  7. Albert H. De Wet & Renee Van Eyden & Rangan Gupta, 2008. "Conditional Loss Estimation Using a South African Global Error Correcting Macroeconometric Model," Working Papers 200826, University of Pretoria, Department of Economics. [Downloadable!]
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