Zhang, Zhipeng (2009): Who Pulls the Plug? Theory and Evidence on Corporate Bankruptcy Decisions.
This is the latest version of this item.
Download (482kB) | Preview
We offer a model and evidence on firms' optimal bankruptcy decisions. In the model, both the borrower and bank lenders can trigger a bankruptcy filing. We show that debt composition has significant influence on corporate bankruptcy decisions. For example, firms with a small share of bank debt as a fraction of total debt tend to voluntarily file for bankruptcy. When a firm depends heavily on bank debt, the bankruptcy boundary is more likely to be determined by the bank. Our results highlight the control rights of large private creditors in distressed firms.
|Item Type:||MPRA Paper|
|Original Title:||Who Pulls the Plug? Theory and Evidence on Corporate Bankruptcy Decisions|
|Keywords:||Voluntary bankruptcy; Forced bankruptcy; Bankruptcy boundary; Debt structure; Creditor control.|
|Subjects:||G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill
G - Financial Economics > G3 - Corporate Finance and Governance > G33 - Bankruptcy ; Liquidation
G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages
|Depositing User:||Zhipeng Zhang|
|Date Deposited:||26. Oct 2009 19:09|
|Last Modified:||12. Feb 2013 10:27|
Acharya, Viral V., Sreedhar T. Bharath, and Anand Srinivasan, 2007, Does industry-wide distress affect defaulted firms? Evidence from creditor recoveries, Journal of Financial Economics 85, 787-821.
Altman, Edward I., Brooks Brady, Andrea Resti, and Andrea Sironi, 2005, The link between default and recovery rates: Theory, empirical evidence, and implications, Journal of Business 78, 2203-2228.
Andrade, Gregor, and Steven N. Kaplan, 1998, How costly is financial (not economic) distress? Evidence from highly leveraged transactions that become distressed, Journal of Finance 53, 1443-1494.
Asea, Patrick, and Brock Blomberg, 1998, Lending cycles, Journal of Econometrics 83, 89-128.
Asquith, Paul, Robert Gertner, and David Scharfstein, 1994, Anatomy of financial distress: An examination of junk-bond issuers, The Quarterly Journal of Economics 109, 625-658.
Black, Fisher, and John Cox, 1976, Valuing corporate securities: Some effects of bond indenture provisions, Journal of Finance 31, 351-367.
Bruche, Max, and Carlos Gonzalez-Aguado, 2008, Recovery rates, default probabilities and the credit cycle, Working Paper, CEMFI.
Bulow, Jeremy I., and John B. Shoven, 1978, The bankruptcy decision, The Bell Journal of Economics 9, 437-56.
Caballero, Ricardo J., and Arvind Krishnamurthy, 2008, Collective risk management in a flight to quality episode, Journal of Finance, forthcoming.
Cantillo, Miguel, and Julian Wright, 2000, How do firms choose their lenders? An empirical investigation, Review of Financial Studies 13, 155-189.
Carey, Mark, and Michael Gordy, 2007, The bank as grim reaper: Debt composition and recoveries on defaulted debt, Working Paper, Board of Governors of the Federal Reserve, Washington D.C.
Chava, Sudheer, and Michael R. Roberts, 2008, How does financing impact investment? The role of debt covenants, Journal of Finance 63, 2085-2121.
Covitz, Daniel M., Song Han, and Beth Anne Wilson, 2006, Are longer bankruptcies really more costly?, Finance and Economics Discussion Series 2006-27, Washington: Board of Governors of the Federal Reserve System.
Davydenko, Sergei A., 2007, When do firms default? A study of the default boundary, Working Paper, University of Toronto.
DeAnglo, Harry, Linda DeAnglo, and Karen H. Wruck, 2002, Asset liquidity, debt covenants, and managerial discretion in financial distress: The collapse of L.A. Gear, Journal of Financial Economics 64, 3-34.
Dell’Ariccia, Giovanni, and Robert Marquez, 2006, Lending booms and lending standards, Journal of Finance 61, 2511-2546.
Fischer, Edwin O., Robert Heinkel, and Josef Zechner, 1989, Dynamic capital structure choice: Theory and tests, Journal of Finance 44, 19-40.
Frye, Jon, 2000a, Collateral damage detected, Federal Reserve Bank of Chicago, Working Paper, Emerging Issues Series, October.
Frye, Jon, 2000b, Depressing recoveries, Risk 13(11), 108-111.
Geske, Robert, 1977, The valuation of corporate liabilities as compound options, Journal of Financial and Quantitative Economics 12, 541-552.
Gilson, Stuart C., Kose John, and Larry H.P. Lang, 1990, Troubled debt restructurings, Journal of Financial Economics 27, 315-353.
Goldstein, Robert S., Nengjiu Ju, and Hayne Leland, 2000, An ebit-based model of dynamic capital structure, Journal of Business 74, 483-512.
Gorton, Gary B., and Ping He, 2008, Bank credit cycles, Review of Economic Studies, forthcoming.
Gorton, Gary B., and James Kahn, 2000, The design of bank loan contracts, Review of Financial Studies 13, 331-364.
Guner, A. Burak, 2007, Bank lending opportunities and credit standards, Working paper, Barclays Global Investors, San Francisco.
Gupton, Greg M., Daniel Gates, and Lea V. Carty, 2000, Bank loan loss given default, Moody.s Investors Service Global Credit Research.
Hart, Oliver, 2000, Different approaches to bankruptcy, NBER Working Paper 7921.
Houston, Joel F., and Christopher M. James, 1996, Bank information monopolies and the mix of private and public debt claims, Journal of Finance 51, 1863-89.
Hu, Yen-Ting, and William Perraudin, 2002, The dependence of recovery rates and defaults, Working paper, Birkbeck College.
Jensen, Michael C., 1989, The eclipse of the public corporation, Harvard Business Review 5, 61-74.
Kim, In Joon, Krishna Ramaswamy, and Suresh Sundaresan, 1993, Does default risk in coupons affect the valuation of corporate bonds? A contingent claims model, Financial Management 22, 117-131.
Lang, William W., and Leonard I. Nakamura, 1995, “Flight to quality” in banking and economic activity, Journal of Monetary Economics 36, 145-164.
Leland, Hayne E., 1994, Corporate debt value, bond covenants, and optimal capital structure, Journal of Finance 49, 1213-1252.
Leland, Hayne E., 1998, Agency costs, risk management, and capital structure, Journal of Finance 53, 1213-1243.
Leland, Hayne E., and Klaus Bjerre Toft, 1996, Optimal capital structure, endogenous bankruptcy, and the term structure of credit spreads, Journal of Finance 51, 987-1019.
Longstaff, Francis, and Eduardo Schwartz, 1995, A simple approach to valuing risky fixed and floating rate debt, Journal of Finance 50, 789-819.
Lown, Cara S., Donald P. Morgan, and Sonali Rohatgi, 2000, Listening to loan officers: The impact of commercial credit standards on lending and output, Economic Policy Review - Federal Reserve Bank of New York 6(2), 1-16.
Maksimovic, Vojislav, and GordonM. Phillips, 1998, Asset efficiency and reallocation decisions of bankrupt firms, Journal of Finance 53, 1495-1533.
Nini, Greg, David C. Smith, and Amir Sufi, 2009, Creditor control rights and firm investment policy, Journal of Financial Economics forthcoming.
O’Keefe, John, Virginia Olin, and Christopher A. Richardson, 2005, Underwriting cycles in banking: Are bad loans really made in good times?, Working paper, Federal Deposit Insurance Corporation.
Rajan, Raghuram G., 1994, Why bank credit policies fluctuate: A theory and some evidence, Quarterly Journal of Economics 109, 399-441. Roberts, Michael R., and Amir Sufi, 2009a, Control rights and capital structure: An empirical investigation, Journal of Finance forthcoming.
Roberts, Michael R., and Amir Sufi, 2009b, Renegotiation of financial contracts: Evidence from private credit agreements, Review of Financial Studies, forthcoming.
Ruckes, Martin, 2004, Bank competition and credit standards, Review of Financial Studies 17, 1073-1102.
Schuermann, Til, 2004, What do we know about loss given default?, Wharton Financial Institutions Center Working Paper No. 04-01.
Sufi, Amir, 2009, Bank lines of credit in corporate finance: An empirical analysis, Review of Financial Studies 22, 1057-1088.
Thorburn, Karin, 2000, Bankruptcy auctions: Costs, debt recovery, and firm survival, Journal of financial economics 58, 337-368.
Van de Castle, Karen, David Keisman, and Ruth Yang, 2000, Suddenly structure mattered: Insights into recoveries of defaulted debt, Standard & Poor’s Credit Week pp. 61-68.
Weinberg, John A., 1995, Cycles in lending standards, Economic Quarterly 81, 1-18.
Zhang, Zhipeng, 2009, Recovery rates and macroeconomic conditions: The role of loan covenants, Working paper, Boston College.
Available Versions of this Item
Who Pulls the Plug? Theory and Evidence on Corporate Bankruptcy Decisions. (deposited 06. Oct 2009 09:14)
- Who Pulls the Plug? Theory and Evidence on Corporate Bankruptcy Decisions. (deposited 26. Oct 2009 19:09) [Currently Displayed]