Corporate bankruptcy reorganization
Abstract
Corporate bankruptcy has for thirty years had an important place in the theory of finance, but analysis of the actual process of bankruptcy has received less attention in the literature. This thesis consists of three essays on corporate bankruptcy reorganization. Essay One provides an analysis of the characteristics of a sample of corporate bankruptcy reorganizations filed under Chapters X and XI of the Chandler Act and the Bankruptcy Reform Act of 1978. Results show that more than 70 per cent of the reorganizations were successful. In more than half the cases for which data was available, prebankruptcy common equity retained value. The success or failure of the reorganization was not related to changes in management. Firms which filed after the Reform Act were more likely to reorganize successfully than those filing before the Reform Act. Creditors on average forgave 35 per cent of the face value of their claims in settling with the debtor firm. Essay Two is a capital market study of the sample described in Essay One. Essay Two examines common stock portfolios of reorganizing firms in event time. Results indicate that common shareholders experience significant losses when a bankruptcy reorganization is made and that there is no impact on stock prices due to the announcement of the confirmation of the reorganization plan. The return evidence for the period between the beginning and end of the reorganization is mixed. Weekly portfolio returns which include firms listed on regional exchanges are positive. Daily portfolio returns over the same period are flat. Essay Three details the bankruptcy reorganization of a single firm, Wickes Cos., which filed in 1982 under Chapter XI of the 1978 Reform Act. The Wickes reorganization conforms well with the sample analyses of Essays One and Two except that Wickes common shareholders earned positive risk-adjusted returns in the period between the bankruptcy filing and court confirmation of the reorganization plan. The Wickes reorganization is also a practical demonstration of the unanimous consent procedure.
Degree
Ph.D.
Advisors
McConnell, Purdue University.
Subject Area
Management|Business costs
Off-Campus Purdue Users:
To access this dissertation, please log in to our
proxy server.