Are debt-to-equity swaps a win-win strategy in corporate bankruptcy reorganization? Evidence from China

Debt-to-equity swaps have been widely adopted not only in China but also in other jurisdictions. This study examines the pricing mechanisms and market reactions associated with debt-to-equity swap in Chinese listed firms undergoing bankruptcy reorganizations from 2019 to 2024. Using a hand-collected dataset, we analyze the gap between the court-approved conversion price and the stock’s forward-adjusted closing price on the trading day before plan approval, and we assess how that pricing gap relates to short-term stock performance. Results show that debt-to-equity swaps usually occur at substantial discounts. These discounts vary by industry and liquidation value, and larger discounts are linked to weaker post-conversion returns. These findings suggest market skepticism toward highly discounted swaps. We conclude that debt-to-equity swaps in Chinese listed-company reorganizations deliver, at best, a partial rather than complete win-win outcome. The findings have direct implications for courts, regulators, and investors evaluating the fairness and market credibility of reorganization pricing.