Serial bankruptcy: plan infeasibility or just bad luck?

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Abstract
Through a comparison of serial and once bankrupt firms over the period 1970–1996, those factors that lead to a successful reorganization are examined. It is found that serial bankrupt firms generally fail to restructure their top management around the time of their initial reorganization while over 70% of the sample of once bankrupt firms replace their senior executives. Serial bankrupt firms increase their level of fixed payments, are less able to lower their debt coupon rate and issue more equity than their once-bankrupt matches. It is further found that firm growth, performance, liquidity and size are associated with a greater likelihood of a successful reorganization. Firm risk as measured by financial leverage increases the probability of a subsequent bankruptcy. These results are useful to both bankruptcy courts and corporate managers seeking to discriminate between feasible and unrealistic reorganization plans following bankruptcy.
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