Arbeitspapier

Bankruptcy choice with endogenous financial constraints

In this paper we study firm dynamics and industry equilibrium when firms under financial distress face a non-trivial choice between alternative bankruptcy procedures. Given limited commitment and asymmetric information, financial contracts specify default, renegotiation and reorganization policies. Renegotiation entails a redistribution of social surplus, while reorganization takes the form of enhanced creditor monitoring. Firms with better contract histories are less likely to default, but, contingent on default, firms with better outside options successfully renegotiate, in line with the empirical evidence. Unless monitoring is too costly, renegotiation leads to reorganization, which resembles actual bankruptcy practice. We calibrate the model to match certain aspects of the data on bankruptcy and firm dynamics in the United States. Our counterfactual experiments suggest that poorly designed bankruptcy arrangements can increase substantially the fraction of firms facing financial constraints, with sizable negative implications for aggregate output and TFP.

Sprache
Englisch

Erschienen in
Series: IDB Working Paper Series ; No. IDB-WP-824

Klassifikation
Wirtschaft
Firm Behavior: Theory
Investment; Capital; Intangible Capital; Capacity
Asymmetric and Private Information; Mechanism Design
Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
Bankruptcy; Liquidation
Firm Performance: Size, Diversification, and Scope
Thema
Corporate bankruptcy
default
renegotiation
reorganization
financial constraints
firm dynamics

Ereignis
Geistige Schöpfung
(wer)
Tamayo, Cesar E.
Ereignis
Veröffentlichung
(wer)
Inter-American Development Bank (IDB)
(wo)
Washington, DC
(wann)
2017

DOI
doi:10.18235/0000728
Handle
Letzte Aktualisierung
10.03.2025, 11:43 MEZ

Datenpartner

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ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.

Objekttyp

  • Arbeitspapier

Beteiligte

  • Tamayo, Cesar E.
  • Inter-American Development Bank (IDB)

Entstanden

  • 2017

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