Claimholder Incentive Conflicts in Reorganization: The Role of Bankruptcy Law
- 1 January 1989
- journal article
- Published by Oxford University Press (OUP) in The Review of Financial Studies
- Vol. 2 (1) , 109-123
- https://doi.org/10.1093/rfs/2.1.109
Abstract
When a firm is in financial distress, in most cases a set of mutually advantageous reorganization plans exist. This article shows that the bankruptcy code, by providing rules governing the negotiation process, yields a unique solution to the reorganization process. In addition, the structure imposed by the code mitigates the holdout problem created by the individual claimant's divergent incentives.Keywords
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