Debtor-in-possession financing and bankruptcy resolution: Empirical evidence

Journal Article (Journal Article)

Debtor-in-possession (DIP) financing is unique secured financing available to firms filing for Chapter 11. Opponents of DIP financing argue that it leads to overinvestment. Alternatively, DIP financing can allow funding for positive net present value projects that increase the likelihood of reorganization and reduce time in bankruptcy. Using a large sample of bankruptcy filings, we find little evidence of systematic overinvestment. DIP financed firms are more likely to emerge from Chapter 11 than non-DIP financed firms. DIP financed firms have a shorter reorganization period; they are quicker to emerge and also quicker to liquidate. The reorganization period is even shorter when prior lenders provide the DIP financing. © 2003 Elsevier Science B.V. All rights reserved.

Full Text

Duke Authors

Cited Authors

  • Dahiya, S; John, K; Puri, M; Raḿrez, G

Published Date

  • July 1, 2003

Published In

Volume / Issue

  • 69 / 1

Start / End Page

  • 259 - 280

International Standard Serial Number (ISSN)

  • 0304-405X

Digital Object Identifier (DOI)

  • 10.1016/S0304-405X(03)00113-2

Citation Source

  • Scopus