Simultaneous Debt-Equity Holdings and The Resolution of Financial Distress

65 Pages Posted: Last revised: 17 Jul 2020

See all articles by Yongqiang Chu

Yongqiang Chu

Belk College of Business, UNC Charlotte

Ha Diep-Nguyen

Purdue University, Krannert School of Management

Jun Wang

University of Western Ontario - DAN Department of Management and Organizational Studies

Wei Wang

Queen's University - Smith School of Business

Wenyu Wang

Indiana University - Kelley School of Business - Department of Finance

Date Written: September 30, 2019

Abstract

Constructing a comprehensive data set of financially distressed firms that restructured their debts from 2000-2014, we find that firms with financial institutions’ debt-equity simultaneous holdings are more likely to restructure out of court than to file for bankruptcy. The effect is stronger when loans are over-secured and when the expected bankruptcy costs are larger. We use mergers of financial institutions and instrumental variable estimations to establish causality. Firms with simultaneous holdings experience higher stock returns and are not more likely to reenter into financial distress. The evidence suggests that the mitigation of shareholder-creditor conflicts results in cost-effective resolutions of financial distress.

Keywords: financial distress; bankruptcy; out-of-court restructuring; simultaneous holding; debt; equity

JEL Classification: G20, G30, G33

Suggested Citation

Chu, Yongqiang and Nguyen, Ha and Wang, Jun and Wang, Wei and Wang, Wenyu, Simultaneous Debt-Equity Holdings and The Resolution of Financial Distress (September 30, 2019). Kelley School of Business Research Paper No. 18-66, 31st Australasian Finance and Banking Conference 2018, Available at SSRN: https://ssrn.com/abstract=3216923 or http://dx.doi.org/10.2139/ssrn.3216923

Yongqiang Chu

Belk College of Business, UNC Charlotte ( email )

9201 University City Boulevard
Charlotte, NC 28223
United States
7046877695 (Phone)

Ha Nguyen

Purdue University, Krannert School of Management ( email )

403 W State St
West Lafayette, IN 47907
United States

Jun Wang

University of Western Ontario - DAN Department of Management and Organizational Studies ( email )

Social Science Centre
London, Ontario N6A 5C2
Canada

Wei Wang (Contact Author)

Queen's University - Smith School of Business ( email )

Queen's University-Smith School of Business
143 Union Street
Kingston, Ontario K7L 3N6
Canada

Wenyu Wang

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
326
Abstract Views
2,004
rank
105,021
PlumX Metrics