An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Mine H. Aksu
Sabanci University

Abstract: I investigate whether going-concern value or abandonment option value dominates in debt restructuring (TDR) firms, in an attempt to explain the contradictory market reaction results. Basing the analysis on the shareholders’ call and put options, the study first predicts the impact of a TDR on the firm’s fundamentals and shareholders’ wealth. Then it examines the financial and asset structures of TDR firms around their restructuring attempts, uses a new method to corraborate the positive market reaction results, compares the results with a matched sample, and uses a valuation model to measure the explanatory power of their net income versus book values. Their financial profiles and the value relevance of their net income improve after the restructuring attempt and the asset exit values are not any higher than those of the matched sample. The evidence supports the positive wealth effects and the prominance of going-concern value in TDR firms.

Back to Session Listing

AAA Home Page