Bankruptcy Resolution: Misery or Strategy

Jairaj Gupta, Mariachiara Barzotto, André Aroldo Freitas de Moura

Research output: Contribution to journalArticlepeer-review


Contrary to conventional wisdom, this study reports the presence of a positive relationship between large United States firms’ leverage levels and their likelihood of emerging from Chapter 11 bankruptcy. In anticipation of a favourable court outcome, which allows them to emerge from bankruptcy with reduced debt, firms tend to increase their leverage levels in the years preceding the bankruptcy filing year. Thus, suggesting strategic abuse of bankruptcy courts and creditors. Test results suggest that firms start acting strategically up to four years before filing for bankruptcy so that they can emerge with a reduced debt burden at the cost of creditors. Additionally, our study also contributes to the corporate bankruptcy literature by exploring a set of factors (related to the firm, judicial, case, geographic, and macroeconomic characteristics) explaining the likelihood of firms emerging from bankruptcy, and proposing a parsimonious multivariate model that best predicts the likelihood of surviving Chapter 11 bankruptcy.
Original languageEnglish
Article numberabac.12311
Number of pages44
Early online date4 Jan 2024
Publication statusE-pub ahead of print - 4 Jan 2024

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