In United States bankruptcies, the absolute priority rule dictates that shareholders recover no value unless creditors are paid in full. Because unsecured creditors are typically not paid in full, shareholders lose their ownership interest and recover little-to-nothing in bankruptcy. Despite the...

In this article, we show that only distressed firms not identified as distressed by creditors are able to transfer wealth from creditors to shareholders. Using the number of years to future bankruptcy as a proxy for genuine distress and measures based on observable firm characteristics as...

Research shows that most ventures fail, yet it has devoted limited attention to the consequences of entrepreneurs’ past failure for investors' decisions. Our motivating insight is that failure can be due to bad luck, lack of skill or both. Therefore, failure conveys ambiguous information...