While the bankruptcy framework induced by the seminal work of Bulow & Shoven and White has been the foundation for theoretical work for the last 20 years, it has never been tested. Based on a data set of 640 Canadian insolvent firms, we find that the probability of reorganization increases with the level of free assets, the amount of debt reduction and the firm size while it decreases with the firm's liquidation value. The decision to reorganize also depends on other factors such as the proportion of government claims, the legal form of the firm and the asset/debt ratio.
FISHER, T.C.G. and MARTEL, J. (2009). An Empirical Analysis of the Firm's Reorganization Decision. Finance, 30(1), pp. 121-149.