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Transactions Costs and Capital Structure Choice: Evidence from Financially Distressed Firms

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Author Info
 Gilson, Stuart C
Abstract

This study provides evidence that transaction costs discourage debt reductions by financially distressed firms when they restructure their debt out of court. As a result, these firms remain highly leveraged and one-in-three subsequently experience financial distress. Transactions costs are significantly smaller, hence leverage falls by more and there is less recurrence of financial distress when firms recontract in Chapter 11. Chapter 11 therefore gives financially distressed firms more flexibility to choose optimal capital structures. Copyright 1997 by American Finance Association.

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Publisher Info
Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 52 (1997)
Issue (Month): 1 (March)
Pages: 161-96
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Handle: RePEc:bla:jfinan:v:52:y:1997:i:1:p:161-96

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  2. Gregor Andrade & Steven N. Kaplan, 1997. "How Costly is Financial (not Economic) Distress? Evidence from Highly Leveraged Transactions that Became Distressed," NBER Working Papers 6145, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Ernst-Ludwig VON THADDEN & Erik BERGLÖF & Gérard ROLAND, 2003. "Optimal Debt Design and the Role of Bankruptcy," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 03.13, Université de Lausanne, Faculté des HEC, DEEP. [Downloadable!]
  4. Drukarczyk, Jochen & Schöntag, Stefanie, 2006. "Insolvenzplan, optionsbasierte Lösungen, Verlustvorträge und vom Gesetzgeber verursachte Sanierungshemmnisse," Regensburger Diskussionsbeiträge zur Wirtschaftswissenschaft 414, University of Regensburg, Department of Economics. [Downloadable!]
  5. Morgado, Artur & Pindado, Julio, 2001. "Selección de proveedores y tipos de fondos: Teoría y evidencia empírica con datos de panel," Documentos de Trabajo "Nuevas Tendencias en Dirección de Empresas". Working Papers "New Trends on Business Administration". 2001-13, Interuniversitary Doctorate Program "New Trends on Business Administration", Universities of Valladolid, Burgos and Salamanca (Spain). Programa de Doctorado Interuniversitario "Nuevas Tendencias en Di. [Downloadable!]
  6. Dangl, Thomas & Zechner, Josef, 2003. "Credit Risk and Dynamic Capital Structure Choice," CEPR Discussion Papers 4132, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. Régis Blazy & Gisèle Umbhauer & Laurent Weill, 2008. "How Bankruptcy Punishment Influences the Ex-Ante Design of Debt Contracts?," Working Papers of CREFI-LSF (Centre of Research in Finance - Luxembourg School of Finance) 08-04, CREFI-LSF, University of Luxembourg. [Downloadable!]
  8. Dirk Hackbarth & Junjian Miao & Erwan Morellec, 2005. "Capital Structure, Credit Risk, and Macroeconomic Conditions," Boston University - Department of Economics - Macroeconomics Working Papers Series WP2005-005, Boston University - Department of Economics. [Downloadable!]
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  9. Campbell, John Y. & Hilscher, Jens & Szilagyi, Jan, 2005. "In search of distress risk," Discussion Paper Series 1: Economic Studies 2005,27, Deutsche Bundesbank, Research Centre. [Downloadable!]
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  10. Couwenberg, O. & Jong, A. de, 2007. "Costs and Recovery Rates in the Dutch Liquidation-Based Bankruptcy System," Research Paper ERS-2007-041-F&A Revision, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni. [Downloadable!]
  11. Alan Schwartz, . "A Normative Theory of Business Bankruptcy," American Law & Economics Association Annual Meetings 1037, American Law & Economics Association. [Downloadable!]
  12. TSURUTA Daisuke & Peng XU, 2007. "Debt Structure and Bankruptcy of Financially Distressed Small Businesses," Discussion papers 07032, Research Institute of Economy, Trade and Industry (RIETI). [Downloadable!]
  13. Hong Liu & Jianjun Miao, 2006. "Managerial Preferences, Corporate Governance, and Financial Structure," Boston University - Department of Economics - Macroeconomics Working Papers Series WP2006-020, Boston University - Department of Economics. [Downloadable!]
  14. Franks, Julian R & Lóránth, Gyöngyi, 2005. "A Study of Inefficient Going Concerns in Bankruptcy," CEPR Discussion Papers 5035, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  15. Abel Elizalde, 2006. "Credit Risk Models Ii: Structural Models," Working Papers wp2006_0606, CEMFI. [Downloadable!]
  16. Brunner, Antje & Krahnen, Jan Pieter, 2004. "Multiple Lenders and Corporate Distress: Evidence on Debt Restructuring," CEPR Discussion Papers 4287, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  17. Daniel M. Covitz & Song Han & Beth Anne Wilson, 2006. "Are longer bankruptcies really more costly?," Finance and Economics Discussion Series 2006-27, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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