Corporate Restructuring and Creditor Power: Evidence from European Insolvency Law Reforms

59 Pages Posted: 2 Mar 2021

See all articles by Frédéric Closset

Frédéric Closset

Technical University of Munich

Christoph Großmann

Technische Universität München (TUM), Department of Financial Management and Capital Markets, Students

Christoph Kaserer

Technische Universität München (TUM)

Daniel Urban

Erasmus University Rotterdam (EUR) - Department of Business Economics

Date Written: January 10, 2021

Abstract

In an attempt to match US bankruptcy law, many European countries have reformed their insolvency laws towards a regime that fosters corporate restructuring. This paper evaluates the implications of these reforms. Based on a staggered difference-in-differences analysis around eight insolvency reforms in 15 European countries, this paper finds a relative increase in the cost of debt by about 50 bps in countries with such a reform. The effect is more pronounced among firms being closer to default. As a result of increased cost of debt financing, firms cut investment and employee pay by about 2 percent. Overall, the results are consistent with the view that creditors may be negatively affected by insolvency law reforms oriented towards restructuring and, thus, demand higher risk premia.

Keywords: law, finance, bankruptcy, insolvency, restructuring, cost of debt

JEL Classification: G21, G32, G33, G38

Suggested Citation

Closset, Frédéric and Großmann, Christoph and Kaserer, Christoph and Urban, Daniel, Corporate Restructuring and Creditor Power: Evidence from European Insolvency Law Reforms (January 10, 2021). Available at SSRN: https://ssrn.com/abstract=3768436 or http://dx.doi.org/10.2139/ssrn.3768436

Frédéric Closset

Technical University of Munich ( email )

Arcisstrasse 21
Munich, 80333
Germany

Christoph Großmann

Technische Universität München (TUM), Department of Financial Management and Capital Markets, Students ( email )

Munich, 80333
Germany

Christoph Kaserer (Contact Author)

Technische Universität München (TUM) ( email )

Arcisstr. 21
Munich, D-80290
Germany
+49 89 289 25489 (Phone)
+49 89 289 25488 (Fax)

HOME PAGE: http://www.cefs.de

Daniel Urban

Erasmus University Rotterdam (EUR) - Department of Business Economics ( email )

Netherlands

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