Out-of-Court Restructuring versus Formal Bankruptcy in a Non-Interventionist Bankruptcy Setting

Review of Finance 14, 2010, 623-668

58 Pages Posted: 25 Mar 2008 Last revised: 3 Aug 2012

Philipp Jostarndt

Ludwig Maximilian University of Munich - Faculty of Business Administration (Munich School of Management)

Zacharias Sautner

Frankfurt School of Finance & Management gemeinnützige GmbH

Date Written: August 27, 2009

Abstract

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.

Keywords: Bankruptcy, debt restructuring, capital structure

JEL Classification: G32, G33

Suggested Citation

Jostarndt, Philipp and Sautner, Zacharias, Out-of-Court Restructuring versus Formal Bankruptcy in a Non-Interventionist Bankruptcy Setting (August 27, 2009). Review of Finance 14, 2010, 623-668 . Available at SSRN: https://ssrn.com/abstract=1107115 or http://dx.doi.org/10.2139/ssrn.1107115

Philipp Jostarndt

Ludwig Maximilian University of Munich - Faculty of Business Administration (Munich School of Management) ( email )

Kaulbachstr. 45
Munich, 80539
Germany

Zacharias Sautner (Contact Author)

Frankfurt School of Finance & Management gemeinnützige GmbH ( email )

Sonnemannstraße 9-11
Frankfurt am Main, 60314
Germany

Paper statistics

Downloads
925
Rank
19,087
Abstract Views
3,170