Is Bargaining in Chapter 11 Costly?

46 Pages Posted: 3 Oct 2000

See all articles by Maria Carapeto

Maria Carapeto

affiliation not provided to SSRN

Date Written: September 2000

Abstract

In this paper I compare the bankruptcy bargaining process amongst different creditors and equity-holders, for firms with only one plan of reorganisation with those with multiple plans of reorganisation. I find that the class of unsecured creditors is the driving force in this renegotiation. The results suggest that unsecured creditors only accept plans of reorganisation where they benefit from deviations from absolute priority, though at the risk of lower recovery rates as a result of the extended bargaining. Equity-holders recover more in multiple-plan firms and unsecured creditors recover less. Multiple-plan firms have more classes of claimants than single-plan firms, which is consistent with more information asymmetry in the former cases and so a more intense bargaining.

Keywords: Bankruptcy, Bargaining, Recovery Rates, Deviations from Absolute Priority

JEL Classification: C72, C78, G33

Suggested Citation

Carapeto, Maria, Is Bargaining in Chapter 11 Costly? (September 2000). EFA 0215; EFMA 2000 Athens Meetings, Cass Business School Research Paper, Available at SSRN: https://ssrn.com/abstract=241569 or http://dx.doi.org/10.2139/ssrn.241569

Maria Carapeto (Contact Author)

affiliation not provided to SSRN

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