Claimholder Incentive Conflicts in Reorganization: The Role of Bankruptcy Law

David T Brown

The Review of Financial Studies, 1989, vol. 2, issue 1, 109-23

Abstract: When a firm is financial distress, in most cases a set of mutually advantageous reorganization plans exist. This article shows that the bankruptcy code, by providing rules governing the negotiation process, yields a unique solution to the reorganization process. In addition, the structure imposed by the code mitigates the holdout problem created by the individual claimant's divergent incentives. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Date: 1989
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