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Claimholder Incentive Conflicts in Reorganization: The Role of Bankruptcy Law

David T. Brown
The Review of Financial Studies
Vol. 2, No. 1 (1989), pp. 109-123
Stable URL: http://www.jstor.org/stable/2962042
Page Count: 15
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Claimholder Incentive Conflicts in Reorganization: The Role of Bankruptcy Law
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Abstract

When a firm is in financial distress, in most cases a set of mutually advantageous reorganization plans exist. This article shows that the bankruptcy code, by providing rules governing the negotiation process, yields a unique solution to the reorganization process. In addition, the structure imposed by the code mitigates the holdout problem created by the individual claimant's divergent incentives.

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