Journal of Financial Economics· 2026Q1
Do rights offerings reduce bargaining complexity in Chapter 11?
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- Q1SCImago
- 2026year
Short summary
Rights offerings, predominantly proposed by hedge funds, financed 35% of large US bankruptcies over the past two decades and significantly improve creditor recoveries and shorten reorganization times.
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Key points
- Rights offerings financed 35% of large US bankruptcies in the last two decades.
- Hedge funds are the primary proponents and underwriters of these rights offerings.
- Rights offerings are correlated with stock market performance.
- Compared to other financing, rights offerings yield higher creditor recoveries, shorter reorganization durations, and lower refiling rates.
- Rights offerings allow firms to raise capital without resorting to value-reducing asset liquidations.
AI-generated from the title and abstract; the full text is not read.
Abstract
This paper investigates the role of rights offerings in U.S. Chapter 11 reorganizations as a new market-based mechanism for mitigating bargaining frictions. Using novel hand-collected data, I document three facts: (i) over the past two decades, rights offerings financed 35% of large bankruptcies, (ii) they are predominantly proposed and underwritten by hedge funds, and (iii) their occurrence is highly correlated with stock market performance. In an instrumental variable setting, I find that compared with other sources of financing, rights offerings lead to higher creditor recoveries, shorter reorganization durations, and lower refiling rates. They also allow firms to access new capital without resorting to asset liquidations, which are value-reducing. My findings suggest that by alleviating key bargaining frictions in large and complex bankruptcy cases, rights offerings may improve the efficiency of resource allocation in the economy.
The authors' abstract, as published at the source. Journal of Financial Economics, 2026 · DOI ↗
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