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

Demiroglu, C, Franks, J R and Lewis, R (2021) Do Market Prices Improve the accuracy of court valuations in Chapter 11? Journal of Finance. ISSN 0022-1082 (Accepted)

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
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: 12 Jan 2022 14:40
URI: https://lbsresearch.london.edu/id/eprint/1984
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