Crisis Interventions in Corporate Insolvency

127 Pages Posted: 16 Feb 2021 Last revised: 13 Jan 2024

See all articles by Samuel Antill

Samuel Antill

Harvard Business School

Christopher Clayton

Yale School of Management

Date Written: January 10, 2024


We model the optimal resolution of insolvent firms in general equilibrium. Collateral constrained
banks lend to (i) solvent firms to finance investments and (ii) distressed firms to
avoid liquidation. Liquidations create negative fire-sale externalities. Liquidations also relieve
bank balance-sheet congestion, enabling new firm loans that generate positive collateral
externalities by lowering bank borrowing rates. Socially optimal interventions encourage liquidation
when firms have high operating losses, high leverage, or low productivity. Surprisingly,
larger fire sales promote interventions encouraging more liquidations. We study synergies between
insolvency interventions and macroprudential regulation, bailouts, deferred loss recognition,
and debt subordination. Our model elucidates historical crisis interventions.

Keywords: Corporate Insolvency, Bankruptcy, Crisis Intervention, Zombie Lending

JEL Classification: D62, G28, G33, G38

Suggested Citation

Antill, Samuel and Clayton, Christopher, Crisis Interventions in Corporate Insolvency (January 10, 2024). Available at SSRN: or

Samuel Antill (Contact Author)

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Christopher Clayton

Yale School of Management ( email )

Cambridge, MA
United States

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