The Effects of Bankruptcy Court Protection on Asset Sales

This paper uses commercial aircraft transactions to assess the degree to which bankruptcy court protection alleviates costs of financial distress associated with asset sales. Results indicate that bankruptcy court protection does little to mitigate price discounts associated with distressed asset sales. If anything, the discount is larger for bankrupt firms than for distressed but non-bankrupt rivals. However, bankruptcy protection does appear to limit piecemeal liquidation of distressed airlines. The rate of asset sales is relatively high in the year preceding bankruptcy, but, for airlines that eventually emerge from bankruptcy, the rate of asset sales is reduced after Chapter 11 filing