Dr Edith Hotchkiss, Carroll School of Management, Boston College
The use of M&A in bankruptcy has increased dramatically, leading to concerns that Chapter 11 leads to excessive liquidation of viable firms. In this paper, we argue that the rise of M&A has blurred traditional distinctions between “reorganisation” and “liquidation”. We examine the drivers of M&A activity, based on factors specific to Chapter 11 as well as more general factors that drive M&A waves for non-distressed firms. M&A in bankruptcy is counter-cyclical, and is more likely when the costs of financing a reorganisation are greater than financing costs to a potential acquirer. Consistent with a senior creditor liquidation bias, the greater use of secured debt leads to more sales in bankruptcy – but, this result holds only for sales that preserve going concern value. We also show that overall creditor recovery rates are higher, and unsecured creditor recoveries and post-bankruptcy survival rates are not different, when bankrupt firms sell businesses as going concerns.
Professor Hotchkiss received her PhD at New York University, Leonard N. Stern School of Business and her BA at Dartmouth College. Previously, she has worked for New York University as a Visiting Assistant Professor of Finance and at Standard & Poor’s Corporation as an Assistant Vice President. She is a member of academic advisory board and board of directors of the Turnaround Management Association. Her research focuses mainly on corporate finance, more specifically, the efficiency of Chapter 11 bankruptcy procedures; restructuring mechanisms for financially distressed firms; transparency and efficiency of the corporate bond market. Her teaching interests focus on corporate finance: valuation and corporate restructuring.