| Description |
This dissertation is divided into three chapters. Chapter 1 presents evidence that firms that use the Chapter 11 process to facilitate different bankruptcy outcomes (emergence, acquisition, liquidation) take very different paths to bankruptcy. The evidence is consistent with Jensen's (1986) debt monitoring hypothesis. Higher levels of liquid assets and lower levels of leverage appear to allow managers in firms that liquidate considerable discretion in the years leading up to bankruptcy compared to firms that emerge. Additionally, the evidence in this chapter suggests that there are considerable outcome effects in bankruptcy samples and that the uncertainty surrounding bankruptcy outcomes is largely resolved by the bankruptcy filing date. Chapter 2 investigates the impact of vulture investors (activist distressed-debt investors) on the bankruptcy process. Recent work on vulture investors is affected by a sample- selection bias as the identification of vulture investors is dependent on the firm emerging from bankruptcy. After controlling for this bias, the evidence suggest that firms with vulture involvement have similar debt recovery rates and managerial turnover rates compared to firms without vulture involvement. The findings are inconsistent with the prior work which suggests that vulture investors balance the bargaining power between the debtor (current management) and the creditor resulting in a more creditor-friendly bankruptcy process. The evidence does suggest that vulture investors may mitigate the effects of industry distress on recovery rates. Chapter 3 approximates the returns to vulture investors. The evidence suggests that vulture investors' preferred entry points are bank debt and public debt. Vulture investors typically hold their positions for about 4 years from bankruptcy filing. The return evidence suggests that on average vulture investors earn about 1% per month on their individual investments. These returns are not significantly different from the return on the S&P 500, a distressed debt index, or benchmark portfolios. Overall the evidence is inconsistent with vulture investors earning rents for value creation. |
