Crisis Interventions in Corporate Insolvency

73 Pages Posted: 16 Feb 2021 Last revised: 5 Nov 2021

See all articles by Samuel Antill

Samuel Antill

Harvard Business School

Christopher Clayton

Yale School of Management

Date Written: November 4, 2021


We model the optimal resolution of insolvent firms in general equilibrium. Privately optimizing agents choose to let banks assign liquidations, encouraging ex-ante lending. A social planner optimally intervenes during a crisis because of two pecuniary externalities. A fire-sale externality motivates subsidies for liquidation-preventing loans to insolvent firms. However, a loan-price externality arises when constrained banks allocate scarce capital to averting liquidations rather than bolstering healthier firms, motivating liquidation subsidies. Efficient intervention can thus encourage or discourage liquidation, depending on the crisis, shedding light on recent crisis-motivated policy proposals. Interventions in seniority structures can substitute for interventions in liquidation decisions.

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

JEL Classification: D62, G28, G33, G38

Suggested Citation

Antill, Samuel and Clayton, Christopher, Crisis Interventions in Corporate Insolvency (November 4, 2021). 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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