Pre-Bankruptcy Dynamics and Unsecured Debt
41 Pages Posted: 22 Apr 2008 Last revised: 3 Sep 2008
Date Written: September 2, 2008
Abstract
We analyze the impact of pre-bankruptcy dynamics on the levels of unsecured debt at the start of bankruptcy procedures, using a unique sample of small distressed firms that reorganize under Belgian court-supervision. These firms rely on trade credit if banks withdraw their lending prior to bankruptcy. Apparently trade creditors are willing to finance a distressed firm's shortfall in cash flow during this period. They also accumulate unpaid taxes and social contributions in the running-up to bankruptcy reorganization, pushing the government administration in the unintended role of lender of last resort. These findings suggest that pre-bankruptcy dynamics strongly affect the debt structure at the moment of initiation of the procedure and in this way the ultimate outcome of the restructuring process.
Keywords: court-supervised reorganization, bankruptcy, pecking order, trade creditor theory, lender of last resort
JEL Classification: G33, G38, K20
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Debt Enforcement Around the World
By Simeon Djankov, Oliver Hart, ...
-
Debt Enforcement Around the World
By Simeon Djankov, Oliver Hart, ...
-
By Arturo Bris, Ivo Welch, ...
-
By Stuart C. Gilson, Edith S. Hotchkiss, ...
-
By Lawrence A. Weiss and Karen H. Wruck
-
Asset Efficiency and Reallocation Decisions of Bankrupt Firms
-
Bankruptcy Around the World: Explanations of its Relative Use
By Stijn Claessens and Leora F. Klapper
-
Do Bankruptcy Codes Matter? A Study of Defaults in France, Germany and the UK
By Sergei Davydenko and Julian R. Franks
-
Vulture Investors and the Market for Control of Distressed Firms