Anginer, DenizWarburton, A. Joseph2012-03-192012-03-192010-10-01https://hdl.handle.net/10986/3943Did the U.S. government's intervention in the Chrysler reorganization overturn bankruptcy law? Critics argue that the government-sponsored reorganization impermissibly elevated claims of the auto union over those of Chrysler's other creditors. If the critics are correct, businesses might suffer an increase in their cost of debt because creditors will perceive a new risk, that organized labor might leap-frog them in bankruptcy. This paper examines the financial market where this effect would be most detectible, the market for bonds of highly unionized companies. The authors find no evidence of a negative reaction to the Chrysler bailout by bondholders of unionized firms. They thus reject the notion that investors perceived a distortion of bankruptcy priorities. To the contrary, bondholders of unionized firms reacted positively to the Chrysler bailout. This evidence suggests that bondholders interpreted the Chrysler bailout as a signal that the government will stand behind unionized firms. The results are consistent with the notion that too-big-to-fail government policies generate moral hazard in the credit markets.CC BY 3.0 IGOABSOLUTE PRIORITY RULEACCOUNTINGASSET SALEASSETSBAILOUTBAILOUTSBALANCE SHEETBANK MARKETBANKRUPTBANKRUPTCIESBANKRUPTCYBANKRUPTCY CODEBANKRUPTCY COURTBANKRUPTCY ESTATEBANKRUPTCY LAWBANKRUPTCY LAWSBANKRUPTCY PRIORITIESBANKRUPTCY PRIORITYBANKRUPTCY PROCEEDINGSBANKRUPTCY PROCESSBANKRUPTCY PROTECTIONBANKRUPTCY REORGANIZATIONBANKRUPTCY RESOLUTIONBANKRUPTCY SYSTEMBARGAINING POWERBENEFICIARYBONDBOND INVESTORSBOND MARKETBOND MARKETSBOND PRICESBOND RETURNSBOND SPREADBOND YIELDSBONDHOLDERBONDHOLDERSBORROWING COSTSBRIDGE LOANCAPITAL FLOWSCAPITAL MARKETSCDSCLAIMANTSCLASS OF CLAIMSCLASSES OF CREDITORSCLEAN PRICECOLLATERALCOLLECTIVE BARGAININGCOLLECTIVE BARGAINING AGREEMENTCOMMERCIAL LAWCONCESSIONSCONCESSIONS FROM CREDITORSCONSUMER PRICE INDEXCONVERTIBLE BONDSCORPORATE BONDCORPORATE BOND INDICESCORPORATE BOND TRANSACTIONSCORPORATE BONDSCORPORATE DEBTCORPORATE DEBTORSCORPORATE INVESTMENTCORPORATE YIELDSCOST OF CAPITALCOST OF DEBTCOUPONCOUPON PAYMENTCOUPON PAYMENTSCOURT DECISIONSCREDIT ENHANCEMENTSCREDIT MARKETCREDIT MARKETSCREDIT RATINGCREDIT RISKCREDIT SPREADCREDITORCREDITOR CLAIMSCREDITOR CLASSCREDITOR PRIORITIESCREDITORSDEBENTUREDEBTDEBT BURDENDEBT FINANCINGDEBT HOLDERSDEBT MARKETDEBT MARKET PARTICIPANTSDEBTORDEBTORSDEFAULT PREMIUMDEFAULT PROBABILITYDEFAULT RISKDEPOSITDEPOSIT INSURANCEDERIVATIVEDISTRESSED DEBTDISTRESSED SECURITIESDUMMY VARIABLEECONOMIC RECESSIONEMPLOYEE BENEFITEMPLOYEE RETIREMENTEQUITABLE TREATMENTEQUITY HOLDERSEQUITY STAKEESTATEESTATESEXCHANGE COMMISSIONFEDERAL RESERVEFEDERAL RESERVE BANKFINANCIAL CRISISFINANCIAL DISTRESSFINANCIAL INSTITUTIONSFINANCIAL MARKETFINANCIAL MARKETSFINANCIAL SHOCKFINANCIAL STUDIESFIRMS IN REORGANIZATIONFIXED INCOMEFIXED INCOME SECURITYFLOATING INTEREST RATESFORECLOSURESFULL REPAYMENTFUND MANAGERSGOVERNMENT BAILOUTGOVERNMENT BAILOUTSGOVERNMENT INTERVENTIONGOVERNMENT INTERVENTIONSGOVERNMENT INVOLVEMENTGOVERNMENT POLICIESGOVERNMENT REGULATIONGOVERNMENT SUPPORTGROUPS OF CREDITORSHIGH YIELD BONDSHIGH-YIELD BONDSHOLDINGIMPLICIT GOVERNMENT GUARANTEEIMPLICIT GUARANTEEINDEBTEDINDEBTEDNESSINDIVIDUAL BONDINSOLVENCYINSURANCEINSURANCE POLICYINTANGIBLEINTERNATIONAL BANKINVESTMENT DECISIONSJUNIOR CREDITORSLABOR FORCELABOR UNIONLABOR UNIONSLENDER OF LAST RESORTLENDERSLEVERAGELIENLIENSLIQUIDATIONLIQUIDITYLLCLOANMARKET BEHAVIORMARKET CAPITALIZATIONMARKET DEVELOPMENTMARKET DISCIPLINEMARKET FOR BONDSMARKET PLAYERSMARKET RISKMARKET TRANSPARENCYMARKET VALUEMARKET VALUESMATURITIESMATURITYMERGERSMORAL HAZARDNEGOTIATIONNEGOTIATIONSNONPAYMENTOWNERSHIP INTERESTSPENSIONPENSION FUNDSPOLITICAL CONSIDERATIONSPORTFOLIOPOSSESSIONPOSSESSION FINANCINGPOST-PETITION FINANCINGPRIORITY CLAIMPRIORITY CLAIMSPRIORITY DEBTPRIVATE LENDERPRIVATE SECTOR DEVELOPMENTREORGANIZATIONREORGANIZATION PROCESSREORGANIZATIONSREPAYMENTRESTRUCTURING PLANRETIREMENT INCOME SECURITYRETURNRETURNSRETURNS ON BONDSRISK ASSESSMENTSRISK FACTORSRISKY DEBTRULE OF BANKRUPTCYRULE OF LAWSALE DOCUMENTSSECONDARY MARKETSECURITIESSECURITY INTERESTSECURITY INTERESTSSETTLEMENTSETTLEMENTSSTOCK MARKETSTOCK MARKETSSTOCK RETURNSTOCK RETURNSSTOCKSTAXTRADE CREDITORSTRADINGTRADING COSTSTRADING MARKETSTRANSACTIONTREASURIESTREASURYTREASURY BONDSTREASURY YIELDUNSECURED CLAIMUNSECURED CLAIMSUNSECURED CREDITORUNSECURED CREDITORSUNSECURED DEBTUNSECURED OBLIGATIONSVALUATIONWARRANTSWEALTH EFFECTSYIELD CURVEYIELDS ON BONDSWorld Bank10.1596/1813-9450-5462