Out-of-Court Restructuring versus Formal Bankruptcy in a Non-Interventionist Bankruptcy Setting
Ludwig Maximilian University of Munich - Faculty of Business Administration (Munich School of Management)
Frankfurt School of Finance & Management gemeinnützige GmbH
August 27, 2009
Review of Finance 14, 2010, 623-668
We investigate debt restructurings in Germany for a sample of 116 financially distressed companies. About half of the firms succeed in restructuring their debt in a workout while the others file for bankruptcy. Our evidence suggests that firms which have higher leverage, owe more debt to banks, and exhibit higher going concern values are more likely to conduct a workout. Bankruptcy is more likely for firms with deficient lender coordination and a high fraction of collateralized debt.
An analysis of stock returns suggests that the market uses similar information to predict workouts. 84% of the bankrupt firms were ultimately liquidated.
Number of Pages in PDF File: 58
Keywords: Bankruptcy, debt restructuring, capital structure
JEL Classification: G32, G33
Date posted: March 25, 2008 ; Last revised: August 3, 2012