The Economic Impact of Chapter 11 Bankruptcy versus Out‐of‐Court Restructuring
Published in Journal of Applied Corporate Finance,
with Donald Markwardt, and Ross DeVol
Companies in financial distress have usually been able to choose between working out an agreement with their creditors (“private restructuring”) or entering into more expensive and lengthier formal Chapter 11 bankruptcy proceedings. But 2015 rulings in two cases by the U.S. District Court for the Southern District of New York may force distressed firms to enter Chapter 11 rather than seek negotiated out‐of‐court settlements.
Using a large sample of U.S. companies that experienced financial difficulty during the period 2006–2014, the authors found that the companies that filed for bankruptcy and went through Chapter 11 proceedings experienced significantly more job losses and reductions of economic output than companies achieving out‐of‐court restructurings, both overall and on a per‐case basis. The authors’ estimates of the overall losses in output associated with Chapter 11 bankruptcy cases ranged as high 
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