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The Importance of deviations from the absolute priority rule in chapter 11 bankruptcy proceedings

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Departures from the absolute priority rule (APR) in chapter 11 bankruptcy proceedings have been of great interest to finance scholars throughout the 1990s. Beranek, Boehmer and Smith criticize three of the early articles in this area: Franks and Torous, 1989; Eberhart, Moore and Roenfeldt, 1990; and Weiss, 1990; collectively called the priority papers. BBS argue that these studies misrepresent the legal aspects of the APR and fail to explain why departures from the APR are of interest. We have relegated their points to three categories: false or misleading statements; statements that reveal a misunderstanding of the finance literature; and statements that merely echo points made in the priority papers. We also show that their alternative definition of the APR is an arbitrary phrase that provides an incomplete description of how claims are paid in chapter 11. Their empirical section is a desultory collection of descriptive statistics and conclucions that contradict earlier points made in their paper

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en

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application/pdf

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http://flora.insead.edu/fichiersti_wp/inseadwp1997/97-90.pdf

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Copyright INSEAD. All rights reserved