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Vulture funds and the fresh start accounting value of firms emerging from bankruptcy

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  • Miles Gietzmann
  • Helena Isidro
  • Ivana Raonic

Abstract

We study how distress†oriented hedge funds (vulture funds) play an important role in the fresh start valuation of firms emerging from Chapter 11 reorganization. We find that loan†to†own vultures acquire debt positions of the distressed firm that grant dominant power in the bankruptcy negotiations, and they then use the discretion allowed by fresh start accounting to introduce valuation bias in their favor. We show that the strategic influence over fresh start values can create opportunities to increase vulture investors’ returns at the expense of other claim holders.

Suggested Citation

  • Miles Gietzmann & Helena Isidro & Ivana Raonic, 2018. "Vulture funds and the fresh start accounting value of firms emerging from bankruptcy," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 45(3-4), pages 410-436, March.
    • Handle: RePEc:bla:jbfnac:v:45:y:2018:i:3-4:p:410-436
    DOI: 10.1111/jbfa.12303
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    Cited by:

    1. 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.

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