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, 77 (2). pp. 1179-1218. ISSN 0022-1082 OPEN ACCESS


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

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: 20 Apr 2024 01:32
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