We investigate the financial recontracting of firms completing distressed exchanges and those reorganizing under Chapter 11. We find that recovery rates for creditors, on average, are higher in distressed exchanges than in Chapter 11 reorganizations, as are equity deviations from absolute priority. The difference in deviations potentially provides valuable information on the higher costs of formal reorganization. Also, cash is used more extensively to redeem creditors' claims in Chapter 11 than in distressed exchanges. The greater use of cash can be attributed to provisions of the Bankruptcy Code that permit conservation of cash and facilitate asset sales.

This paper examines the effects of over 1,800 U.K. takeovers on shareholder wealth in the period 1955–1985. It shows that around the merger announcement date targets gain 25 to 30 percent and bidders earn zero or modest gains. The U.K. data allow independent tests of many issues addressed in studies of U.S. takeovers. Target gains are higher in the U.K. after 1968, suggesting that increases in U.S. target gains at the same time may not be attributable to the Williams Act. Postmerger share-price performance suggests that acquisitions follow favorable developments in bidder's equity prices.

Using a sample of small firms that defaulted on their bank debt in France, Germany, and the United Kingdom, we find that large differences in creditors' rights across countries lead banks to adjust their lending and reorganization practices to mitigate costly aspects of bankruptcy law. In particular, French banks respond to a creditor‐unfriendly code by requiring more collateral than lenders elsewhere, and by relying on collateral forms that minimize the statutory dilution of their claims in bankruptcy. Despite such adjustments, bank recovery rates in default remain sharply different across the three countries, reflecting very different levels of creditor protection.

The purpose of this paper is to understand the institutional features of Chapter 11 from an empirical examination of thirty firms that have emerged from reorganization. We find the recontracting framework of Chapter 11 to be complex, lengthy, and costly. Violations of absolute priority in favor of stockholders are frequently encountered. These deviations may result from the bargaining process of Chapter 11 or from a recontracting process between creditors and stockholders which recognizes the ability of stockholder‐oriented management to preserve firm value. An example of such recontracting addresses Myers' underinvestment problem. An investigation of the effects of Chapter 11 on the pricing of risky debt is also provided.

In this paper, we examine leasing as a tax‐arbitrage instrument. Analysis of a sample of UK leases presented in this paper suggests that lessors earn large positive NPVs. Our theoretical model seeks to explain these positive NPVs in terms of a market price for a scarce resource that we identify as scarce taxable earnings. Using these prices, the model permits a lessor to determine whether the profitability of a proposed set of lease contracts can be improved by writing a different set of contracts that makes better use of the lessor's taxable earnings. There may be two reasons why an initial portfolio of contracts may be suboptimal. Either there may be clienteles or the leasing market may be inefficient. Subsequently, we discuss reasons why the leasing market may be characterized by clienteles, and, using two different samples of leases, we test whether the leasing market is segmented and efficient.

This paper attempts to estimate both the direct and indirect costs of regulation for major sectors of the UK financial services industry. We also compare UK direct costs with those for the US and France and this provides a benchmark for assessing the effect of regulation on the competitive position of the UK financial services industry. We believe that this is the first attempt to compare regulatory costs in the UK with those of its major competitors. For indirect costs, in the absence of an international benchmark we compare our results with the predictions made at the time of the introduction of the Financial Services Act, by Lomax (Lomax, D., 1987. London Markets After the Financial Services Act, Butterworths, London) and Goodhart (Goodhart, C., 1988. The costs of regulation. In: Seldon, A. (Ed.), Financial Regulation or Over-regulation. Institute of Economic Affairs, London, p. 31). They estimated that indirect costs would be £4 for every £1 of direct costs and that annual aggregate costs would be £100 million. Our results suggest that, so far as direct costs are concerned, the costs of regulation for the securities and derivatives trading and broking sector are substantially lower for the UK than for the US and France. In contrast, for the investment management and unit trust industry UK costs are significantly higher than those for the other two countries. For the life insurance industry, UK costs are similar to those in France but markedly lower than those for the US. We also find for the securities industry around £4.1 of indirect costs per £1 of direct costs. For the investment management industry the corresponding figure is £3.2. However there is substantial variation across firms and, although our sample is too small to be definitive, the ratio appears to be related to firm size. Although these results are broadly in line with the predictions of Lomax and Goodhart it should be borne in mind that both numerator and denominator are substantially higher in real terms than those used by Lomax and Goodhart.