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The Security Price Effects Of Public Debt Defaults

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  • Brian L. Betker

Abstract

A debt default requires a restructuring that may take place in or out of court. By examining security returns around a sample of public debt defaults, only some of which end in bankruptcy, I provide new evidence on the costs and benefits of bankruptcy compared with workouts. Evidence from security returns implies that bankruptcy is more costly than a workout, but that the cost differential is reduced for firms with large net operating loss carryforwards. The evidence is also consistent with the argument that equity has greater option value in a workout relative to bankruptcy.

Suggested Citation

  • Brian L. Betker, 1998. "The Security Price Effects Of Public Debt Defaults," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 21(1), pages 17-35, March.
    • Handle: RePEc:bla:jfnres:v:21:y:1998:i:1:p:17-35
    DOI: 10.1111/j.1475-6803.1998.tb00267.x
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    Cited by:

    1. Maria Carapeto, 2006. "Explaining Deviations from Absolute Priority Rules in Bankruptcy," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 3(3), pages 543-560, November.

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