Resource title

Information problems, conflicts of interest and asset stripping: chapter 11's failure in the case of Eastern airlines

Resource image

image for OpenScout resource :: Information problems, conflicts of interest and asset stripping: chapter 11's failure in the case of Eastern airlines

Resource description

Eastern Airlines' bankruptcy illustrates the devastating effect of court-sponsored asset stripping -using creditors' collateral to invest in negative net present value "lottery ticket" investments- on firm value. During its bankruptcy, Eastern's value dropped over 50%. The authors show that a substantial portion of this value decline occured because an over-protective court insulated Eastern from market forces and allowed value-destroying operations to continue long after it was clear Eastern should be shut down. The failure of Easrtern's Chapter 11 demonstrates the importance of the court's role in protecting a distressed firm's assets, not only from a run by creditors, but also from averly optimistic managers.

Resource author

Resource publisher

Resource publish date

Resource language

en

Resource content type

application/pdf

Resource resource URL

http://flora.insead.edu/fichiersti_wp/inseadwp1996/96-48.pdf

Resource license

Copyright INSEAD. All rights reserved