IDEAS home Printed from https://ideas.repec.org/a/taf/acctbr/v38y2008i1p71-89.html
   My bibliography  Save this article

Bankruptcy costs, leverage and multiple secured creditors: The case of management buy‐outs

Author

Listed:
  • David Citron
  • Mike Wright

Abstract

Using a unique, hand‐collected final dataset of 57 management buy‐outs in distress, this paper analyses the determinants of bankruptcy costs under the UK's receivership regime. We show that the direct costs of receivership consume a significant percentage of the receivership proceeds, with mean receivership costs equal to 30% of receivership proceeds. Importantly we find that while the average length of receivership was 3.0 years, 95% of repayments are made on average within 1.9 years. Our findings do not support the argument that multiple lenders create inefficiencies resulting in significantly lower secured creditor recovery rates. However, when there are multiple secured lenders, the senior secured lender gains at the expense of other secured creditors. We find that receivership costs are positively related to the proportion of secured debt repaid and that, consistent with the presence of a scale effect, the relative significance of receivership costs declines as firm size grows. Receiverships last longer the larger the amount of debt owed to the secured lenders.

Suggested Citation

  • David Citron & Mike Wright, 2008. "Bankruptcy costs, leverage and multiple secured creditors: The case of management buy‐outs," Accounting and Business Research, Taylor & Francis Journals, vol. 38(1), pages 71-89.
    • Handle: RePEc:taf:acctbr:v:38:y:2008:i:1:p:71-89
    DOI: 10.1080/00014788.2008.9663320
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/00014788.2008.9663320
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/00014788.2008.9663320?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tykvová, Tereza & Borell, Mariela, 2012. "Do private equity owners increase risk of financial distress and bankruptcy?," Journal of Corporate Finance, Elsevier, vol. 18(1), pages 138-150.
    2. Régis Blazy & Nirjhar Nigam, 2019. "Corporate insolvency procedures in England: the uneasy case for liquidations," European Journal of Law and Economics, Springer, vol. 47(1), pages 89-123, February.
    3. Mike Wright & Robert Cressy & Nick Wilson & Hisham Farag, 2014. "Financial restructuring and recovery in private equity buyouts: the UK evidence," Venture Capital, Taylor & Francis Journals, vol. 16(2), pages 109-129, April.
    4. Wilson, Nick & Wright, Mike & Siegel, Donald S. & Scholes, Louise, 2012. "Private equity portfolio company performance during the global recession," Journal of Corporate Finance, Elsevier, vol. 18(1), pages 193-205.
    5. Chrisman, James J. & Chua, Jess H. & Steier, Lloyd P. & Wright, Mike & McKee, D’Lisa N., 2012. "An agency theoretic analysis of value creation through management buy-outs of family firms," Journal of Family Business Strategy, Elsevier, vol. 3(4), pages 197-206.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:acctbr:v:38:y:2008:i:1:p:71-89. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RABR20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.