David Smith is Professor of Commerce at the University of Virginia. This post is based on an article authored by Professor Smith; Victoria Ivashina, Professor of Finance at Harvard Business School; and Ben Iverson, Assistant Professor of Finance at Northwestern University.
The ownership structure of corporate debt is potentially a key factor affecting the cost of financial distress. However, past studies have been hampered by the fact that observing the ownership of debt claims is difficult. In our paper, The Ownership and Trading of Debt Claims in Chapter 11 Restructurings, which was recently featured in the Journal of Financial Economics, we overcome this obstacle by using claim-level holdings and trading data on bankrupt firms collected electronically by claims administration companies. [1] For 136 large US bankruptcy cases filed between July 1998 and March 2009, these data identify the holder of each claim or the name of a custodian, the amount of the claim, information on the claim type, and, for a subset of claims, ownership transfers that occur during the bankruptcy process. We use these data to study the ownership structure of firms that have filed for bankruptcy, how ownership changes during bankruptcy, and ultimately, how ownership structure influences Chapter 11 outcomes (our data set does not include private workouts).
