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Reorganization And Financial Distress: An Empirical Investigation

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  • Sudip Datta
  • Mai E. Iskandar‐Datta

Abstract

Prior studies on financial distress focus on the restructuring of one aspect of the firm. By examining various forms of restructuring, we provide empirical evidence that asset restructuring and governance restructuring play significant roles before bankruptcy filing. Our analysis shows that financial restructuring before bankruptcy is influenced by the holdout problem among creditor groups. Evidence suggests that the fraudulent conveyance provision does not pose a serious impediment to divestitures during the two years before bankruptcy. The evidence also indicates that Chapter 11 reorganization is lenient toward management. Although Chapter 11 allows the firm to breach burdensome executory contracts with employees, our findings suggest that union busting is not an important part of the reorganization process. Finally, we identify various financial characteristics to predict the different types of restructuring a firm may undertake.

Suggested Citation

  • Sudip Datta & Mai E. Iskandar‐Datta, 1995. "Reorganization And Financial Distress: An Empirical Investigation," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 18(1), pages 15-32, March.
    • Handle: RePEc:bla:jfnres:v:18:y:1995:i:1:p:15-32
    DOI: 10.1111/j.1475-6803.1995.tb00208.x
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    Cited by:

    1. Cadigan, John & Schmitt, Pamela & Shupp, Robert & Swope, Kurtis, 2011. "The holdout problem and urban sprawl: Experimental evidence," Journal of Urban Economics, Elsevier, vol. 69(1), pages 72-81, January.
    2. Solomon SAMANHYIA & Kofi MINTAH OWARE & Frederick ANISOM-YAANSAH, 2016. "Financial Distress and Bankruptcy Prediction: Evidence from Ghana," Expert Journal of Finance, Sprint Investify, vol. 4, pages 52-65.
    3. John Cadigan & Pamela Schmitt & Robert Shupp & Kurtis Swope, 2009. "An Experimental Study of the Holdout Problem in a Multilateral Bargaining Game," Southern Economic Journal, John Wiley & Sons, vol. 76(2), pages 444-457, October.
    4. Chatterjee, Sris & Dhillon, Upinder S. & Ramirez, Gabriel G., 2004. "Debtor-in-possession financing," Journal of Banking & Finance, Elsevier, vol. 28(12), pages 3097-3111, December.
    5. Annabi, Amira & Breton, Michèle & François, Pascal, 2012. "Resolution of financial distress under Chapter 11," Journal of Economic Dynamics and Control, Elsevier, vol. 36(12), pages 1867-1887.
    6. Zorn, Michelle L. & Norman, Patricia M. & Butler, Frank C. & Bhussar, Manjot S., 2017. "Cure or curse: Does downsizing increase the likelihood of bankruptcy?," Journal of Business Research, Elsevier, vol. 76(C), pages 24-33.
    7. Grossman, Zachary & Pincus, Jonathan & Shapiro, Perry & Yengin, Duygu, 2019. "Second-best mechanisms for land assembly and hold-out problems," Journal of Public Economics, Elsevier, vol. 175(C), pages 1-16.
    8. Indro, Daniel C. & Leach, Robert T. & Lee, Wayne Y., 1999. "Sources of gains to shareholders from bankruptcy resolution," Journal of Banking & Finance, Elsevier, vol. 23(1), pages 21-47, January.
    9. Waita M. Gichaiya & Mwasa D. Ishmail & Chepkorir D. Kirui, 2014. "Assessing Success of Turnaround Strategies for Distressed Companies: A Case Study of UCHUMI Supermarket Ltd. Kenya," International Journal of Management Sciences, Research Academy of Social Sciences, vol. 3(9), pages 657-662.
    10. Lara Abdel Fattah & Sylvain Barthélémy & Nadine Levratto & Benjamin Trempont, 2016. "Post-reorganization survival: a semi-parametric and non-parametric analysis of firm characteristics," EconomiX Working Papers 2016-22, University of Paris Nanterre, EconomiX.
    11. Couwenberg, Oscar & Lubben, Stephen J., 2013. "Solving creditor problems in the twilight zone: Superfluous law and inadequate private solutions," International Review of Law and Economics, Elsevier, vol. 34(C), pages 61-76.
    12. Annabi, Amira & Breton, Michèle & François, Pascal, 2012. "Game theoretic analysis of negotiations under bankruptcy," European Journal of Operational Research, Elsevier, vol. 221(3), pages 603-613.
    13. Thanida Chitnomrath & Robert Evans & Theo Christopher, 2011. "Corporate governance and post‐bankruptcy reorganisation performance," Asian Review of Accounting, Emerald Group Publishing Limited, vol. 19(1), pages 50-67, May.
    14. Lara Abdel Fattah & Sylvain Barthelemy & Nadine Levratto & Benjamin Trempont, 2016. "Post-reorganization survival: a semi-parametric and non-parametric analysis of firm characteristics," Working Papers hal-04141587, HAL.

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