 A Monitoring Role for Deviations from Absolute Priority in Bankruptcy ResolutionDina Naples Layish Financial Markets, Institutions & Instruments, 2003, vol. 12, issue 5, 377-410 Abstract: Firms that have successfully reorganized under Chapter 11 of the bankruptcy laws of the United States frequently award shares of common stock in the reorganized firm to pre‐bankruptcy shareholders, even though pre‐bankruptcy creditors’ claims are not fully satisfied. Using a sample of large publicly traded firms, these deviations from absolute priority (DAPR) are found to be positively related to the severity of agency costs within a financially distressed firm. US bankruptcy laws may exacerbate these agency costs by granting exclusivity to management during the reorganization period. Firms in which outside shareholders are more concentrated have a lower occurrence of DAPR indicating that blockholders provide an effective monitoring mechanism for controlling managerial behavior during reorganization. On the other hand, firms without this monitoring mechanism have a higher probability of DAPR indicating that creditors attempt to control managerial behavior by providing them with some sort of financial compensation via their equity holding in the firm. Finally, the evidence indicates that DAPR can be used to mitigate the hold‐up problem resulting from voting rights granted to both junior and senior claimants of the firm by US bankruptcy laws. Date: 2003 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:wly:finmar:v:12:y:2003:i:5:p:377-410 Access Statistics for this article More articles in Financial Markets, Institutions & Instruments from John Wiley & Sons |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.