Acquisitions as a means of restructuring firms in chapter 11

This paper provides empirical evidence that takeovers can facilitate the efficient redeployment of assets of bankrupt firms. Bidders for bankrupt firms are generally in related industries and often have some prior relationship to the target, suggesting they are well informed with respect to both the value and best use of the target's assets. For a sample of 55 acquisitions in Chapter 11, we find that firms merged with bankrupt targets show significant improvements in operating performance, while matching non-bankrupt transactions show no significant improvement. Pie also find positive and significant abnormal stock returns for the bidder and bankrupt target at the announcement of the acquisition. Journal of Economic Literature Classification Numbers: G33, G34. (C) 1998 Academic Press.