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Chapter 11: Duration, Outcome, and Post-Reorganization Performance

Published online by Cambridge University Press:  06 April 2009

Diane K. Denis  and
Kimberly J. Rodgers
Diane K. Denis
Affiliation:
diane@purdue.edu, Krannert Graduate School of Management, Purdue University, 403W. State St., West Lafayette, IN 47907
Kimberly J. Rodgers
Affiliation:
krodgers@stern.nyu.edu, Leonard N. Stern School of Business, New York University, 44 West Fourth St., New York, NY 10012
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Abstract

We find that among firms that file Chapter 11 those that are smaller have better operating performance, and are in higher operating margin industries spend less time in Chapter 11. Firms are more likely to emerge as going concerns and to achieve positive post reorganization profitability if they significantly reduce assets and liabilities while in Chapter 11. Higher pre-bankruptcy industry-adjusted operating margins and improvements in margin are associated with post-reorganization profitability but do not impact the decision to reorganize. These results reveal characteristics and actions associated with successful reorganizations and, furthermore, suggest that Chapter 11 allows promising firms to successfully reorganize.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 42 , Issue 1 , March 2007 , pp. 101 - 118
Copyright
Copyright © School of Business Administration, University of Washington 2007

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