Abstract
Abstract When an enterprise can not fulfill its obligation to repay the debt, the creditors would resort to legal means eventually. In the U.S., The most two common legal procedures are separately recorded in the Chapter 7 and the Chapter 11 of United States Bankruptcy Code. The procedure governed by the Chapter 7 is close to the procedure of liquidation in Taiwan. It liquidates the assets of debtor and uses the proceeds to repay the liabilities. And the Chapter 11 procedure which is also known as reorganization rearranges the face value, terms and the interest rates of the debts through the negotiation and consultation between the debtor and the creditors. Furthermore, the Chapter 11 can be divided into traditional reorganization and prepackaged organization. The main difference between the two types is the order of the filing date and the negotiation of the reorganized plan. Due to the difference, firms reorganize with different types would burden different levels of the direct cost and indirect cost resulted from the procedure. The past literatures concerning prepackaged reorganization are researching the firm characteristics which influence the choice of the reorganizing type ( Yost, 2002 ), examining the difference of stock return and the cost between the firms emerging from the two types of Chapter 11 ( Eberhart et al., 1998; Betker, 1997 ). This article discusses the firm’s characteristics which influence the choice of the reorganizing type. In addition, this article takes Tobin’s Q and Price-to-Book ratio as the proxy of a firm’s value to examine if the firm’s value of firms emerging from different types of reorganization would be significantly different.