Law Commons^™

Managers’ Fiduciary Duties In Financially Distressed Corporations: Chaos In Delaware (And Elsewhere), Rutheford B. Campbell Jr., Christopher W. Frost

Law Faculty Scholarly Articles

The inherent conflict between creditors and shareholders has long occupied courts and commentators interested in corporate governance. Creditors holding fixed claims to the corporation's assets generally prefer corporate decision making that minimizes the risk of firm failure. Shareholders, in contrast, have a greater appetite for risk, because, as residual owners, they reap the rewards of firm success while sharing the risk of loss with creditors.

Traditionally, this conflict is mediated by a governance structure that imposes a fiduciary duty on the corporation's managers-its officers and directors-to maximize the value of the shareholders' interests in the firm. In this traditional view, …

Bankruptcy Decision Making: An Empirical Study Of Continuation, Edward R. Morrison

Faculty Scholarship

Many small businesses attempt to reorganize under Chapter 11 of the U.S. Bankruptcy Code, but most are ultimately liquidated instead. Little is known about this shutdown decision. It is widely suspected that the bankruptcy process exhibits a continuation bias, allowing failing businesses to linger under the protection of the court, which resists liquidation even when it is optimal. This paper examines the shutdown decision in a sample of Chapter 11 bankruptcy cases filed in a typical bankruptcy court over the course of a year. The presence of continuation bias is tested along several dimensions – the extent of managerial control …