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Journal of Finance Vol. 67 No. 2 2012

Hedge Funds and Chapter 11

Wei Jiang1,2; Kai Li3; Wei Wang4,5,6

1 Columbia Business School, Finance and Economics · 2 NBER · 3 University of British Columbia · 4 Lynn University · 5 Astrophysique, Instrumentation et Modélisation · 6 University of Pennsylvania

Abstract

This paper studies the presence of hedge funds in the Chapter 11 process and their effects on bankruptcy outcomes. Hedge funds strategically choose positions in the capital structure where their actions could have a bigger impact on value. Their presence, especially as unsecured creditors, helps balance power between the debtor and secured creditors. Their effect on the debtor manifests in higher probabilities of the latter's loss of exclusive rights to file reorganization plans, CEO turnover, and adoptions of key employee retention plan, while their effect on secured creditors manifests in higher probabilities of emergence and payoffs to junior claims.

DOI
10.1111/j.1540-6261.2012.01724.x
Volume
67
Issue
2
Pages
513-560
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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