Review of Financial Studies Vol. 29 No. 10 2016
Insolvency Resolution and the Missing High-Yield Bond Markets
Abstract
In many countries, poorly functioning bankruptcy procedures force viable but insolvent firms to restructure out of court, where banks may have a bargaining advantage over other creditors. We model the choice of restructuring process and derive implications for the corporate mix of bank and bond financing. Empirical patterns match the model: inefficient bankruptcy in a country is associated with less bond issuance by risky, but not by safe, borrowers. This pattern holds for both levels of and changes in bankruptcy recovery. Our results establish a link between bankruptcy reform and corporate bond markets, especially high-yield markets.
- DOI
- 10.1093/rfs/hhw014
- Volume
- 29
- Issue
- 10
- Pages
- 2814-2849
- Language
- en
- Sources
- crossref openalex