In 111 publicly traded firms that either file for bankruptcy or privately restructure their debt between 1979 and 1985, bank lenders frequently become major stockholders or appoint new directors. On average, only 46% of incumbent directors remain when bankruptcy or debt restructuring ends. Directors who resign hold significantly fewer seats on other boards following their departure. Common-stock ownership becomes more concentrated with large blockholders and less with corporate insiders. Few firms are acquired. Collectively, these results suggest that corporate default leads to significant changes in the ownership of firms' residual claims and in the allocation of rights to manage corporate resources.

This study investigates the incentives of financially distressed firms to restructure their debt privately rather than through formal bankruptcy. In a sample of 169 financially distressed companies, about half successfully restructure their debt outside of Chapter 11. Firms more likely to restructure their debt privately have more intangible assets, owe more of their debt to banks, and owe fewer lenders. Analysis of stock returns suggests that the market is also able to discriminate ex ante between the two sets of firms, and that stockholders are systematically better off when debt is restructured privately.