Abstract

http://ssrn.com/abstract=227358
 
 

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Anatomy of Financial Distress: An Examination of Junk-Bond Issuers


Paul Asquith


Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA); National Bureau of Economic Research (NBER)

Robert H. Gertner


University of Chicago - Finance; National Bureau of Economic Research (NBER)

David S. Scharfstein


Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)

December 1991

NBER Working Paper No. w3942

Abstract:     
This paper examines the events following the onset of financial distress for 102 public junk bond issuers. We find that out-of-court debt relief mainly comes from junk bond - holders; banks almost never forgive principal, though they do defer payments and waive debt covenants. Asset sales are an important means of avoiding Chapter 11 reorganization; however, they may be limited by industry factors. If a company simply restructures its bank debt, but either does not restructure its public debt or does not sell major assets or merge, the company goes bankrupt. The structure of a company's liabilities affects the likelihood that it goes bankrupt; companies whose bank and private debt are secured as well as companies with complex public debt structures are more prone to go bankrupt. Finally, there is no evidence that more profitable distressed companies are more successful in dealing with financial distress; they are not less likely to go bankrupt, sell assets, or reduce capital expenditures.

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Date posted: April 27, 2000  

Suggested Citation

Asquith, Paul and Gertner, Robert H. and Scharfstein, David S., Anatomy of Financial Distress: An Examination of Junk-Bond Issuers (December 1991). NBER Working Paper No. w3942. Available at SSRN: http://ssrn.com/abstract=227358

Contact Information

Paul Asquith (Contact Author)
Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA) ( email )
77 Massachusetts Avenue
Cambridge, MA 02139-4307
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Robert H. Gertner
University of Chicago - Finance ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
David S. Scharfstein
Harvard Business School - Finance Unit ( email )
Boston, MA 02163
United States
617-496-5067 (Phone)
617-496-8443 (Fax)
HOME PAGE: http://www.people.hbs.edu/dscharfstein/
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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