Abstract
The ability to obtain financing is a critical element in attempting to successfully reorganise a firm which has declared Chapter 11 bankruptcy. Debtor‐in‐possession (DIP) financing has become an increasingly popular method in recent years. This paper examines whether receiving DIP financing is related to successful reorganisations and a shortened duration under Chapter 11 bankruptcy proceedings. This study finds that there is an increase in realised returns to equity at the announcement of DIP loan agreements which is positive and statistically significant. It is also found that DIP‐financed firms have a reduced probability of liquidation, and shorter time spent under bankruptcy proceedings.
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