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The Impact of Receiving Debtor‐in‐Possession Financing on the Probability of Successful Emergence and Time Spent Under Chapter 11 Bankruptcy

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  • Fayez A. Elayan
  • Thomas O. Meyer

Abstract

The ability to obtain financing is a critical element in attempting to successfully reorganise a firm which has declared Chapter 11 bankruptcy. Debtor‐in‐possession (DIP) financing has become an increasingly popular method in recent years. This paper examines whether receiving DIP financing is related to successful reorganisations and a shortened duration under Chapter 11 bankruptcy proceedings. This study finds that there is an increase in realised returns to equity at the announcement of DIP loan agreements which is positive and statistically significant. It is also found that DIP‐financed firms have a reduced probability of liquidation, and shorter time spent under bankruptcy proceedings.

Suggested Citation

  • Fayez A. Elayan & Thomas O. Meyer, 2001. "The Impact of Receiving Debtor‐in‐Possession Financing on the Probability of Successful Emergence and Time Spent Under Chapter 11 Bankruptcy," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 28(7‐8), pages 905-942, September.
    • Handle: RePEc:bla:jbfnac:v:28:y:2001:i:7-8:p:905-942
    DOI: 10.1111/1468-5957.00398
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    Cited by:

    1. Chatterjee, Sris & Dhillon, Upinder S. & Ramirez, Gabriel G., 2004. "Debtor-in-possession financing," Journal of Banking & Finance, Elsevier, vol. 28(12), pages 3097-3111, December.
    2. Annabi, Amira & Breton, Michèle & François, Pascal, 2012. "Resolution of financial distress under Chapter 11," Journal of Economic Dynamics and Control, Elsevier, vol. 36(12), pages 1867-1887.
    3. López Gutiérrez, Carlos & García Olalla, Myriam & Torre Olmo, Begoña, 2009. "The influence of bankruptcy law on equity value of financially distressed firms: A European comparative analysis," International Review of Law and Economics, Elsevier, vol. 29(3), pages 229-243, September.
    4. Kalay, Avner & Singhal, Rajeev & Tashjian, Elizabeth, 2007. "Is Chapter 11 costly?," Journal of Financial Economics, Elsevier, vol. 84(3), pages 772-796, June.
    5. Beiqi Lin & Chelsea Liu & Kelvin Jui Keng Tan & Qing Zhou, 2020. "CEO turnover and bankrupt firms’ emergence," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 47(9-10), pages 1238-1267, October.
    6. Dhillon, Upinder S. & Noe, Thomas & Ramirez, Gabriel G., 2007. "Debtor-in-possession financing and the resolution of uncertainty in Chapter 11 reorganizations," Journal of Financial Stability, Elsevier, vol. 3(3), pages 238-260, October.
    7. Amol Baxi, 2023. "Interim Finance in Creditor-Oriented Bankruptcy Codes: A Study in the Context of Insolvency & Bankruptcy Code, India," Vikalpa: The Journal for Decision Makers, , vol. 48(3), pages 189-205, September.
    8. Li, Kai & Wang, Wei, 2016. "Debtor-in-possession financing, loan-to-loan, and loan-to-own," Journal of Corporate Finance, Elsevier, vol. 39(C), pages 121-138.
    9. Thanida Chitnomrath & Robert Evans & Theo Christopher, 2011. "Corporate governance and post‐bankruptcy reorganisation performance," Asian Review of Accounting, Emerald Group Publishing Limited, vol. 19(1), pages 50-67, May.

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