Empirical studies show that quite a few firms that initially filed for Chapter 11 were converted to Chapter 7 by bankruptcy judges, and that the conversion rate differs across judges. This study examines a firm’s optimal financial decisions when it is exposed to forced conversion. We find that forced conversion decreases shareholders’ incentives to invest and reduces the optimal leverage ratio. We show that equity risk after filing for Chapter 11 is more sensitive to forced conversion. When shareholders anticipate that forced conversion is more likely, the investment option value can be lower due to their opportunistic behavior.

中文翻译：

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强制转换为第 7 章破产和最佳财务决策

实证研究表明，很多最初申请第 11 章的公司被破产法官转换为第 7 章，并且转换率因法官而异。本研究考察了一家公司在面临强制转换时的最佳财务决策。我们发现强制转换降低了股东的投资积极性并降低了最优杠杆率。我们表明，申请第 11 章后的股权风险对强制转换更为敏感。当股东预计强制转换的可能性更大时，由于他们的机会主义行为，投资期权价值可能会降低。