THE CREDITORS FINANCIAL REORGANIZATION DECISION - NEW EVIDENCE FROM CANADIAN DATA

This article examines a data set of 338 randomly selected financial re organization plans filed in Canada during the period 1978-87. Creditor s reject roughly 25 percent of reorganization plans, while about 20 pe rcent of the plans creditors accept fail before completion, providing evidence of filtering failure in the reorganization process. A logit m odel of the creditors' reorganization decision produces two interestin g results: (i) plans offering a high proportion of cash payments are m ore likely to be accepted by creditors, which we interpret as evidence that cash is a signal of financial viability; (ii) plans with high ra tios of secured debt are more likely to be accepted, which we interpre t as evidence that secured creditors with insider knowledge signal inf ormation about the financial viability of firms to unsecured creditors .