Do Market Prices Improve the accuracy of court valuations in Chapter 11?

Demiroglu, C, Franks, J and Lewis, R (2022) Do Market Prices Improve the accuracy of court valuations in Chapter 11? Journal of Finance. ISSN 0022-1082 (In Press)

Abstract

The average difference between the court value and post-emergence 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 inter-claimant 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 post-emergence 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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Item Type: Article
Subject Areas: Finance
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© 2022 Wiley. This is the peer reviewed version of the following article: Demiroglu, C., Franks, J. and Lewis, R. (2022), Do Market Prices Improve the Accuracy of Court Valuations in Chapter 11?. Journal of Finance which has been published in final form at https://doi.org/10.1111/jofi.13111.

This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions

Date Deposited: 10 Nov 2021 08:14
Date of first compliant deposit: 10 Nov 2021
Subjects: Corporate bonds
Bankruptcy law
Legal practices and procedures
Last Modified: 07 Jun 2022 05:55
URI: https://lbsresearch.london.edu/id/eprint/1984
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