Liquidation Costs and Accounting Data

Alderson, Michael J.; Betker, Brian L.

doi:10.2307/3665987

Cited by 74 publications

(40 citation statements)

References 26 publications

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“…In the words of Williamson (1988), "redeployable" assets (that is, assets whose value in an alternative use is almost as high as in their current use) are more suited to the governance structures associated with debt. Additional empirical support for this idea is provided by Alderson and Betker (1996), who find that liquidation costs and R&D are positively related across firms. The implication is that the sunk costs associated with R&D investment are higher than that for ordinary investment.…”

Section: Capital Structure and Randdmentioning

confidence: 69%

The Financing of Innovative Firms

Hall

2010

REI

115

130

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Abstract:To what extent are new and/or innovative firms fundamentally different from established firms, and therefore require a different form of financing? The theoretical background for this proposition is presented, and the empirical evidence on its importance is reviewed. Owing to the intangible nature of their investment, asymmetricinformation and moral-hazard, these firms are more likely to be financed by equity than debt and behave in some cases as though they are cash-constrained, especially if they are small. Recognizing the role for public policy in this area, many countries have implemented specific policies to bring the cost of financing innovation more in line with the level that would prevail in the absence of market failures.JEL classification: G32, O32, O38

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Section: Capital Structure and Randdmentioning

confidence: 69%

The Financing of Innovative Firms

Hall

2010

REI

115

130

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“…We define tangibility as plant, property, and equipment scaled by total assets. Second, a higher level of inside ownership increases the bargaining power of shareholders in Chapter 11 as it further aligns the incentives of management and shareholders (Alderson and Betker 1996;Acharya, Bharath, and Srinivasan 2007;Davydenko and Strebulaev 2007). We define inside ownership as the share of stocks held by a firm's top executives.…”

Section: Cross-sectional Heterogeneity In Shareholder Bargaining Powermentioning

confidence: 99%

“…To mitigate the possibility of confounding the effects of the BRA with unrelated shocks, we predict that the cross-section of firms should be differentially affected by the reform, depending on their firm-specific level of shareholder bargaining power. Prior research documents that in firms with high levels of inside ownership, managers act more in the interests of shareholders and that firms with low asset tangibility are difficult to liquidate (Alderson and Betker 1996;Acharya, Bharath, and Srinivasan 2007;Davydenko and Strebulaev 2007). 4 Shareholders of such firms already have a higher level of shareholder bargaining power before the BRA and hence benefit less from the reform.…”

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confidence: 99%

Financial Distress, Stock Returns, and the 1978 Bankruptcy Reform Act

Hackbarth

Haselmann

Schoenherr

2015

The Review of Financial Studies

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We study distress risk premia around a bankruptcy reform that shifts bargaining power in financial distress from debtholders to shareholders. We find that the reform reduces risk factor loadings and returns of distressed stocks. The reform effect is stronger for firms with lower firm-level shareholder bargaining power. An increase in credit spreads of riskier relative to safer firms, in particular for firms with lower firm-level shareholder bargaining power, confirms a shift in bargaining power from bondholders to shareholders. Out-of-sample tests reveal that a reversal of the reform's effect leads to a reversal of factor loadings and returns. (JEL G12, G14, G33, K39) The nature of Chapter 11 makes bargaining an important factor in distressed reorganizations, both in formal bankruptcy and in out-of-court renegotiations.

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“…This is in contrast to the insolvency procedures in creditor oriented countries such as the UK, Germany, Australia and New Zealand where liquidation is the most common outcome of corporate insolvency (Kaiser, 1996;Franks et aI., 1996). The costs of corporate liquidation also exceed the cost of bankruptcy to shareholders and to other stakeholders (Alderson and Betker, 1996;Alderson and Betker, 1999). Moreover, companies in debtor oriented countries may also choose to file for bankruptcy for strategic reasons other than financial distress, such as to avoid an unprofitable contract (Kennedy and Shaw, 1991;Chatterjee et aI., 1996;Franks et aI., 1996).…”

Section: Introductionmentioning

confidence: 99%

The efficacy of liquidation and bankruptcy prediction models for assessing going concern

Kuruppu

Laswad

Oyelere

2003

Managerial Auditing Journal

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Although previous research generally find bankruptcy prediction models to outperform auditors' going concern opinion accuracy in identifying failing companies, recent research questions whether bankruptcy is the best proxy for assessing going concern since filing for bankruptcy is not synonymous with the invalidity of the going concern assumption. Furthermore, in contrast to debtor-oriented countries such as the US, liquidation is the most likely outcome of corporate insolvency in creditor-oriented countries such as the UK, Germany, Australia and New Zealand. This suggests that bankruptcy prediction models have limited use for assessing going concern in creditor-oriented countries. Previous research has not recognised this distinction between corporate bankruptcy and liquidation in developing statistical models as an audit tool for assessing going concern. This study examines the efficacy of a corporate liquidation model and a benchmark bankruptcy prediction model for assessing company liquidation. It finds that the liquidation model is more accurate in predicting company liquidations in comparison with the benchmark bankruptcy prediction model. Most importantly. Type 1 errors for the liquidation prediction model is significantly lower than for the bankruptcy prediction model, which indicates its greater efficacy as an analytical tool for assessing going concern. The results also suggest that bankruptcy prediction models may not be appropriate for assessing going concern in countries where the insolvency code is creditor-oriented.

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Liquidation Costs and Accounting Data

Cited by 74 publications

References 26 publications

The Financing of Innovative Firms

The Financing of Innovative Firms

Financial Distress, Stock Returns, and the 1978 Bankruptcy Reform Act

The efficacy of liquidation and bankruptcy prediction models for assessing going concern

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