Financially distressed firms can gain protection from their creditors while they restructure by filing for protection under U.S. Bankruptcy Codes. In a prepackaged bankruptcy, a firm negotiates a reorganization plan with its creditors prior to filing for bankruptcy. This can result in a much quicker exit from bankruptcy than traditional bankruptcy filings. A study of 49 prepackaged bankruptcies was published in Financial Management (Spring, 1995). For each firm, information was collected on the time (in months) in bankruptcy as well as the results of the board of directors' vote on the type of reorganization plan. Three types of plans were studied: "Joint" -a joint exchange offer with prepackaged bankruptcy solicitation; "Prepack"-prepackaged bankruptcy solicitation only; and "None" -no pre-filing vote held. The data for the 49 firms is provided in the accompanying table.

a. Construct a stem-and-leaf display for the length of time in bankruptcy for all 49 companies.
b. Summarize the information reflected in the stem-and-leaf display from part a. Make a general statement about the length of time in bankruptcy for firms using "prepacks."
c. Select a graphical method that will permit a comparison of the time-in-bankruptcy distributions for the three types or reorganization plans.
d. Firms that were reorganized through a leveraged buyout are identified by an asterisk in the table. Mark these firms on the stem-and-leaf display, part a, by circling their bankruptcy times. Do you observe any pattern in the graph? Explain.

Transcribed Image Text:

Reorganization Plan Time in Bankruptcy (months) None 3.9 10.1 4.1 3.0 3.2 4.2 29 24 7.8 2.6 2.4 5 10 9 13 4.1 11 10 3.8 1.0 15 10 14 1.2 3.0 16 14 11 12 1.5 2.1 14 1.7 14 27 12 4.1 29 14 12 12 15 14 5.2 4.5 2.1 3.9 14 5.4 Prepack Joint