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Asset Efficiency and Reallocation Decisions of Bankrupt Firms

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  • Vojislav Maksimovic

    (University of Maryland Business School, College Park)

  • Gordon Phillips

    (University of Maryland Business School, College Park)

Abstract

This paper investigates whether Chapter 11 bankruptcy provides a mechanism by which insolvent firms are efficiently reorganized and the assets of unproductive firms are effectively redeployed. We argue that incentives to reorganize depend on the level of demand and industry conditions. Using plant-level data, we find that Chapter 11 status is much less important than industry conditions in explaining the productivity, asset sales, and closure conditions of Chapter 11 bankrupt firms. This suggests that firms that elect to enter into Chapter 11 incur few real economic costs. Copyright The American Finance Association 1998.

Suggested Citation

  • Vojislav Maksimovic & Gordon Phillips, 1998. "Asset Efficiency and Reallocation Decisions of Bankrupt Firms," Journal of Finance, American Finance Association, vol. 53(5), pages 1495-1532, October.
  • Handle: RePEc:bla:jfinan:v:53:y:1998:i:5:p:1495-1532
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