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Analysis of Length of Time Spent in Chapter 11 Bankruptcy

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  • Orbe Lizundia, Jesús María
  • Núñez Antón, Vicente Alfredo
  • Ferreira García, María Eva

Abstract

This paper investigates original issuers of high yield bonds in Chapter 11 bankruptcy to determine which factors affect the length of time spent in Chapter 11. In order to do this analysis we propose a flexible new duration model, the censored partial regression model. This model allows us to consider the effect of some variable on the duration using a nonparametric functional form. We find that the choice of prepackaged Chapter 11, the length of time negotiating before filling for Chapter 11, the profitability, the highly leveraged transactions, the participation on different disputes, the role of vulture funds and some institutional changes turn out to be relevant to analyze this duration.

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Bibliographic Info

Paper provided by Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística) in its series BILTOKI with number 2001-01.

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Date of creation: Jan 2001
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Handle: RePEc:ehu:biltok:200101

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Postal: Avda. Lehendakari, Aguirre, 83, 48015 Bilbao
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Postal: Dpto. de Econometría y Estadística, Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain
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Related research

Keywords: lifetime data models; censorship; Kaplan-Meier; bootstrap; nonparametric estimation;

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References

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  1. Michael C. Jensen, 1991. "Corporate Control And The Politics Of Finance," Journal of Applied Corporate Finance, Morgan Stanley, vol. 4(2), pages 13-34.
  2. Stute, W., 1993. "Consistent Estimation Under Random Censorship When Covariables Are Present," Journal of Multivariate Analysis, Elsevier, vol. 45(1), pages 89-103, April.
  3. Franks, Julian R. & Torous, Walter N., 1994. "A comparison of financial recontracting in distressed exchanges and chapter 11 reorganizations," Journal of Financial Economics, Elsevier, vol. 35(3), pages 349-370, June.
  4. Gilson, Stuart C. & John, Kose & Lang, Larry H. P., 1990. "Troubled debt restructurings*1: An empirical study of private reorganization of firms in default," Journal of Financial Economics, Elsevier, vol. 27(2), pages 315-353, October.
  5. White, Michelle J, 1989. "The Corporate Bankruptcy Decision," Journal of Economic Perspectives, American Economic Association, vol. 3(2), pages 129-51, Spring.
  6. Brian L. Betker, 1995. "An Empirical Examination of Prepackaged Bankruptcy," Financial Management, Financial Management Association, vol. 24(1), Spring.
  7. Weiss, Lawrence A., 1990. "Bankruptcy resolution: Direct costs and violation of priority of claims," Journal of Financial Economics, Elsevier, vol. 27(2), pages 285-314, October.
  8. Orbe, Jesus & Ferreira, Eva & Nunez-Anton, Vicente, 2001. "Modelling the duration of firms in Chapter 11 bankruptcy using a flexible model," Economics Letters, Elsevier, vol. 71(1), pages 35-42, April.
  9. Li, Kai, 1999. "Bayesian analysis of duration models: an application to Chapter 11 bankruptcy," Economics Letters, Elsevier, vol. 63(3), pages 305-312, June.
  10. Hotchkiss, Edith S. & Mooradian, Robert M., 1997. "Vulture investors and the market for control of distressed firms," Journal of Financial Economics, Elsevier, vol. 43(3), pages 401-432, March.
  11. Bandopadhyaya, Arindam, 1994. "An Estimation of the Hazard Rate of Firms under Chapter 11 Protection," The Review of Economics and Statistics, MIT Press, vol. 76(2), pages 346-50, May.
  12. Jean Helwege, 1999. "How Long Do Junk Bonds Spend in Default?," Journal of Finance, American Finance Association, vol. 54(1), pages 341-357, 02.
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