The Importance of Deviations from the Absolute Priority Rule in Chapter 11 Bankruptcy Proceedings

Departures from the absolute priority rule (APR) in Chapter 11 bankruptcy proceedings have been of great interest to finance scholars throughout the 1990s. In a recent article, Beranek, Boehmer, and Smith (1996, BBS) criticize three of the early articles in this area (Franks and Torous, 1989, Eberhart, Moore, and Roenfeldt, 1990, and Weiss (1990); collectively called the priority papers), among others. This paper reviews the BBS paper, explains why APR violations have been interesting to finance researchers, and documents the validity of the priority papers' focus.