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Who Pulls the Plug? Theory and Evidence on Corporate Bankruptcy Decisions

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Author Info
Zhang, Zhipeng

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Abstract

We offer a model and evidence on firms' optimal bankruptcy decisions. In the model, both the borrower and bank lenders can trigger a bankruptcy filing. We show that debt composition has significant influence on corporate bankruptcy decisions. For example, firms with a small share of bank debt as a fraction of total debt tend to voluntarily file for bankruptcy. When a firm depends heavily on bank debt, the bankruptcy boundary is more likely to be determined by the bank. Our results highlight the control rights of large private creditors in distressed firms.

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File URL: http://mpra.ub.uni-muenchen.de/17676/
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File URL: http://mpra.ub.uni-muenchen.de/18166/
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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 17676.

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Date of creation: 01 Jun 2009
Date of revision: 05 Oct 2009
Handle: RePEc:pra:mprapa:17676

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Related research
Keywords: Voluntary bankruptcy; Forced bankruptcy; Bankruptcy boundary; Debt structure; Creditor control.;

Other versions of this item:

Find related papers by JEL classification:
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages

This paper has been announced in the following NEP Reports:

References listed on IDEAS
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  1. Oliver Hart, 2000. "Different Approaches to Bankruptcy," Harvard Institute of Economic Research Working Papers 1903, Harvard - Institute of Economic Research. [Downloadable!]
    Other versions:
  2. Rajan, Raghuram G, 1994. "Why Bank Credit Policies Fluctuate: A Theory and Some Evidence," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 399-441, May. [Downloadable!] (restricted)
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    Other versions:
  4. Black, Fischer & Cox, John C, 1976. "Valuing Corporate Securities: Some Effects of Bond Indenture Provisions," Journal of Finance, American Finance Association, vol. 31(2), pages 351-67, May. [Downloadable!] (restricted)
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    Other versions:
  16. Giovanni Dell'Ariccia & Robert Marquez, 2006. "Lending Booms and Lending Standards," Journal of Finance, American Finance Association, vol. 61(5), pages 2511-2546, October. [Downloadable!] (restricted)
    Other versions:
  17. Fischer, Edwin O & Heinkel, Robert & Zechner, Josef, 1989. " Dynamic Capital Structure Choice: Theory and Tests," Journal of Finance, American Finance Association, vol. 44(1), pages 19-40, March. [Downloadable!] (restricted)
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    Other versions:
  19. Geske, Robert, 1977. "The Valuation of Corporate Liabilities as Compound Options," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(04), pages 541-552, November. [Downloadable!]
  20. Cara S. Lown & Donald P. Morgan & Sonali Rohatgi, 2000. "Listening to loan officers: the impact of commercial credit standards on lending and output," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 1-16. [Downloadable!]
  21. 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!]
  22. Roberts, Michael R. & Sufi, Amir, 2009. "Renegotiation of financial contracts: Evidence from private credit agreements," Journal of Financial Economics, Elsevier, vol. 93(2), pages 159-184, August. [Downloadable!] (restricted)
  23. Michael R. Roberts & Amir Sufi, 2009. "Control Rights and Capital Structure: An Empirical Investigation," Journal of Finance, American Finance Association, vol. 64(4), pages 1657-1695, 08. [Downloadable!] (restricted)
  24. Amir Sufi, 2009. "Bank Lines of Credit in Corporate Finance: An Empirical Analysis," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 22(3), pages 1057-1088, March. [Downloadable!] (restricted)
  25. Ricardo J. Caballero & Arvind Krishnamurthy, 2008. "Collective Risk Management in a Flight to Quality Episode," Journal of Finance, American Finance Association, vol. 63(5), pages 2195-2230, October. [Downloadable!] (restricted)
    Other versions:
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