Postbankruptcy Performance and Management Turnover

Abstract

This paper examines the performance of 197 public companies which emerged from Chapter 11. Over 40% of the sample firms continue to experience operating losses in the three years following bankruptcy; 32% reenter bankruptcy or privately restructure their debt. The continued involvement of pre- bankruptcy management in the restructuring process is strongly associated with poor post-bankruptcy performance. The substantial number of firms emerging from Chapter 11 which are not viable or need further restructuring provides little evidence that the process effectively rehabilitates distressed firms, and is consistent with the view that there are economically important biases toward continuation of unprofitable firms.