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Postbankruptcy Performance and Management Turnover



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    • Boston College. This article includes work from my dissertation at New York University. I would like to thank the members of my dissertation committee, Edward Altman, Mitchell Berlin, William Greene, Martin Gruber, Larry Lang, and my chairman Kose John for their guidance, David Brown, David Scharfstein, René Stulz, Walter Torous, participants at the 1993 Western Finance Association Meetings and the 1994 American Finance Association meetings, and an anonymous referee also provided many valuable suggestions. Financial support from the State Farm Companies Foundation and from New York University is gratefully acknowledged.


This article examines the performance of 197 public companies that emerged from Chapter 11. Over 40 percent of the sample firms continue to experience operating losses in the three years following bankruptcy; 32 percent reenter bankruptcy or privately restructure their debt. The continued involvement of prebankruptcy management in the restructuring process is strongly associated with poor post-bankruptcy performance. The substantial number of firms emerging from Chapter 11 that 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.

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