Do Market Prices Improve the Accuracy of Court Valuations in Chapter 11? Article Swipe

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CEM DEMIROGLU , Julian Franks , RYAN LEWIS ·

YOU? · · 2022 · Open Access · · DOI: https://doi.org/10.1111/jofi.13111

The average difference between the court value and postemergence market value of newly issued stocks in Chapter 11 reorganizations exceeds 50%. We show that public dissemination of transactions in defaulted bonds reduces this difference by 23% and largely eliminates interclaimant wealth transfers. The effects of dissemination are only significant when the bonds are sufficiently traded around the court valuation date and when they receive significant amounts of postemergence equity, indicating that the bond's value is sensitive to the size and allocation of the pie. These findings imply that security prices have real effects: they improve the valuations of bankruptcy participants.

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Bankruptcy Equity (law) Valuation (finance) Bond Market value Default Bond valuation Value (mathematics) Significant difference Economics Bond market Financial economics Actuarial science Monetary economics Business Law Finance Mathematics Political science Statistics

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Type: article
Language: en
Landing Page: https://doi.org/10.1111/jofi.13111
PDF: https://onlinelibrary.wiley.com/doi/pdfdirect/10.1111/jofi.13111
OA Status: bronze
Cited By: 9
References: 39
Related Works: 10
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DOI: https://doi.org/10.1111/jofi.13111

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Title: Do Market Prices Improve the Accuracy of Court Valuations in Chapter 11?

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Language: en

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Publication year: 2022

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Publication date: 2022-02-04

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Authors: CEM DEMIROGLU, Julian Franks, RYAN LEWIS

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Landing page: https://doi.org/10.1111/jofi.13111

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Concepts: Bankruptcy, Equity (law), Valuation (finance), Bond, Market value, Default, Bond valuation, Value (mathematics), Significant difference, Economics, Bond market, Financial economics, Actuarial science, Monetary economics, Business, Law, Finance, Mathematics, Political science, Statistics

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Cited by: 9

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