Journal of Financial Economics Vol. 142 No. 3 2021
The bank as Grim Reaper: Debt composition and bankruptcy thresholds
open access
Abstract
We offer a model and evidence showing that private debtholders play a key role in setting the endogenous asset value threshold below which corporations declare bankruptcy. As predicted by the model, we find that the recovery rate at emergence from bankruptcy on all of the firm’s debt taken together is increasing in the pre-bankruptcy share of private debt in all debt. We further find evidence consistent with a two-threshold model in which private debtholders force default in some cases and shareholders default strategically in others.
- DOI
- 10.1016/j.jfineco.2021.05.048
- Volume
- 142
- Issue
- 3
- Pages
- 1092-1108
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref