We present a model of an insolvent firm that may take advantage of a "soft-touch" government creditor in order to buy time before filing for reorganization, behavior we refer to as "claims substitution." Parameters in the model reflect the enforcement of absolute priority and government priority...

We analyze the distressed firm's decision between Chapter 11 and an exchange offer. We construct a comprehensive data set on the financial characteristics and capital structure at 269 distressed firms, which, unlike previous studies, uses quarterly information and includes exhaustive data on...

Using data from financial reorganization plans filed by insolvent Canadian firms, we estimate the discount rate implicit in the unsecured creditor's reorganization decision. Using (HARA) utility functions, we find the implicit monthly discount rate of creditors to be 4.9%, which corresponds to...

One of the major aims of the 1992 reform to bankruptcy law in Canada was to increase the number of reorganization proposals. The purpose of this paper is to analyze the number of reorganization proposals filed by companies in Toronto and Montreal before and after bankruptcy reform to see whether...

We study the impact of earnings management prior to bankruptcy filing on the passage of firms through Chapter 11. Using data on 261 U.S. public firms, we construct three measures of earnings management, two of which are accounting (accrual) manipulation measures (discretionary accruals and...