Journal of Corporate Finance Vol. 9 No. 5 2003
Auctions in bankruptcy
Abstract
This paper examines whether mandatory auctions promote the efficient restructuring of distressed firms relative to a reorganization-based bankruptcy system such as Chapter 11. Under a mandatory auction system, aggressive bidding by a coalition of incumbent management and pre-bankruptcy creditors may deter outside bidders, may result in the coalition paying more than its valuation to acquire the firm, and may result in assets remaining in a lower value use. In a reorganization-based bankruptcy system, management's voluntary choice to seek an auction conveys information about the coalition's valuation, which facilitates competition. Our model shows that a reorganization-based bankruptcy system that encourages, but does not mandate auctions, can actually increase the likelihood that an outside bidder enters and the assets of the bankrupt firm are redeployed.
- DOI
- 10.1016/s0929-1199(02)00026-3
- Volume
- 9
- Issue
- 5
- Pages
- 555-574
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref