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Exchange offer, prenegotiated, or freefall restructuring

Author

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  • Fisher, Timothy C.G.
  • Martel, Jocelyn
  • Naranjo, Lorenzo

Abstract

This study examines the roles of institutional investors in corporate restructuring decisions. We expand the existing empirical literature by using a multinomial logit model with instrumental variables to evaluate the three-way choice of distressed firms between exchange offers, ‘freefall’ Chapter 11, and ‘prenegotiated’ Chapter 11. In addition, we consider a comprehensive list of institutional investors and assess the impact of their equity and debt holdings on restructuring outcomes. Using a unique sample of 74 Chapter 11 freefall cases, 57 prenegotiated Chapter 11 cases, and 138 exchange offers from 2000 to 2018, we find that equity holdings by government, individual, investment advisors and pension funds are positively related to exchange offers and negatively to freefall plans. In contrast, bond holdings by bank, hedge fund, and VC/PE investors are negatively related to exchange offers and positively to freefall or prenegotiated plans while the inverse holds for insurance companies. In addition, assets to liabilities and interest coverage ratios are strongly associated with exchange offers, while higher short-term debt and EBIT margins correlate with freefall and prenegotiated plans. Our results underscore the critical role of investor type in shaping corporate restructuring strategies.

Suggested Citation

  • Fisher, Timothy C.G. & Martel, Jocelyn & Naranjo, Lorenzo, 2026. "Exchange offer, prenegotiated, or freefall restructuring," International Review of Law and Economics, Elsevier, vol. 85(C).
    • Handle: RePEc:eee:irlaec:v:85:y:2026:i:c:s0144818825000766
    DOI: 10.1016/j.irle.2025.106320
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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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