According to signaling theory, Chapter 11 is a useful mechanism for sc
According to signaling theory, Chapter 11 is a useful mechanism for screening inefficient firms out of debt renegotiation. Inefficient firms voluntarily choose Chapter 11 because:
a. the firm can be liquidated more quickly.
b. negotiations therein generally result in some value retained by shareholders.
c. creditors are protected from violations of the absolute priority rule (APR).
d. management can better signal a higher firm value within Chapter 11.
ANSWER
B
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