Financial restructuring in fresh-start chapter 11 reorganizations

Randall A. Heron, Erik Lie, Kimberly J. Rodgers

Research output: Contribution to journalArticle

8 Citations (Scopus)

Abstract

We find that firms substantially reduce their debt burden in "fresh-start" Chapter 11 reorganizations, yet they emerge with higher debt ratios than what is typical in their respective industries. While cross-sectional regressions reveal that post-reorganization debt ratios are more in line with the predictions of the static trade-off theory, they also reveal that pre-reorganization debt ratios affect post-reorganization debt ratios. Collectively, these results suggest that impediments in Chapter 11 prevent firms from completely resetting their capital structures. We also find that firms that reported positive operating income leading up to Chapter 11 emerge faster, suggesting that it is quicker to remedy strictly financial distress than economic distress.

Original languageEnglish (US)
Pages (from-to)727-745
Number of pages19
JournalFinancial Management
Volume38
Issue number4
DOIs
StatePublished - Dec 1 2009

Fingerprint

Debt ratio
Financial restructuring
Reorganization
Chapter 11
Prediction
Trade-off theory
Income
Debt
Capital structure
Distress
Cross-sectional regression
Impediments
Industry
Economics
Financial distress
Remedies
Burden

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

Cite this

Heron, Randall A. ; Lie, Erik ; Rodgers, Kimberly J. / Financial restructuring in fresh-start chapter 11 reorganizations. In: Financial Management. 2009 ; Vol. 38, No. 4. pp. 727-745.
@article{54b9299bb5024a52b6b8e41126debd6b,
title = "Financial restructuring in fresh-start chapter 11 reorganizations",
abstract = "We find that firms substantially reduce their debt burden in {"}fresh-start{"} Chapter 11 reorganizations, yet they emerge with higher debt ratios than what is typical in their respective industries. While cross-sectional regressions reveal that post-reorganization debt ratios are more in line with the predictions of the static trade-off theory, they also reveal that pre-reorganization debt ratios affect post-reorganization debt ratios. Collectively, these results suggest that impediments in Chapter 11 prevent firms from completely resetting their capital structures. We also find that firms that reported positive operating income leading up to Chapter 11 emerge faster, suggesting that it is quicker to remedy strictly financial distress than economic distress.",
author = "Heron, {Randall A.} and Erik Lie and Rodgers, {Kimberly J.}",
year = "2009",
month = "12",
day = "1",
doi = "10.1111/j.1755-053X.2009.01054.x",
language = "English (US)",
volume = "38",
pages = "727--745",
journal = "Financial Management",
issn = "0046-3892",
publisher = "John Wiley and Sons Inc.",
number = "4",

}

Financial restructuring in fresh-start chapter 11 reorganizations. / Heron, Randall A.; Lie, Erik; Rodgers, Kimberly J.

In: Financial Management, Vol. 38, No. 4, 01.12.2009, p. 727-745.

Research output: Contribution to journalArticle

TY - JOUR

T1 - Financial restructuring in fresh-start chapter 11 reorganizations

AU - Heron, Randall A.

AU - Lie, Erik

AU - Rodgers, Kimberly J.

PY - 2009/12/1

Y1 - 2009/12/1

N2 - We find that firms substantially reduce their debt burden in "fresh-start" Chapter 11 reorganizations, yet they emerge with higher debt ratios than what is typical in their respective industries. While cross-sectional regressions reveal that post-reorganization debt ratios are more in line with the predictions of the static trade-off theory, they also reveal that pre-reorganization debt ratios affect post-reorganization debt ratios. Collectively, these results suggest that impediments in Chapter 11 prevent firms from completely resetting their capital structures. We also find that firms that reported positive operating income leading up to Chapter 11 emerge faster, suggesting that it is quicker to remedy strictly financial distress than economic distress.

AB - We find that firms substantially reduce their debt burden in "fresh-start" Chapter 11 reorganizations, yet they emerge with higher debt ratios than what is typical in their respective industries. While cross-sectional regressions reveal that post-reorganization debt ratios are more in line with the predictions of the static trade-off theory, they also reveal that pre-reorganization debt ratios affect post-reorganization debt ratios. Collectively, these results suggest that impediments in Chapter 11 prevent firms from completely resetting their capital structures. We also find that firms that reported positive operating income leading up to Chapter 11 emerge faster, suggesting that it is quicker to remedy strictly financial distress than economic distress.

UR - http://www.scopus.com/inward/record.url?scp=73649145528&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=73649145528&partnerID=8YFLogxK

U2 - 10.1111/j.1755-053X.2009.01054.x

DO - 10.1111/j.1755-053X.2009.01054.x

M3 - Article

AN - SCOPUS:73649145528

VL - 38

SP - 727

EP - 745

JO - Financial Management

JF - Financial Management

SN - 0046-3892

IS - 4

ER -