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Shareholder-Creditor Conflict and the Resolution of Financial Distress

Author

Listed:
  • Yongqiang Chu
  • Ha Diep-Nguyen
  • Jun Wang
  • Wei Wang
  • Wenyu Wang

Abstract

Constructing a comprehensive data set of financially distressed firms that restructured their debts from 2000–2014, we find that firms with financial institutions’ loan-equity simultaneous holdings are more likely to restructure out of court than to file for bankruptcy. The effect is stronger when loans are oversecured and when the expected bankruptcy costs are larger. We use mergers of financial institutions and instrumental variable estimations to address potential endogeneity concerns. Firms with simultaneous holdings experience higher stock returns. The evidence suggests that mitigating shareholder-creditor conflict results in cost-effective resolutions of financial distress.

Suggested Citation

  • Yongqiang Chu & Ha Diep-Nguyen & Jun Wang & Wei Wang & Wenyu Wang, 2025. "Shareholder-Creditor Conflict and the Resolution of Financial Distress," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 14(3), pages 804-838.
    • Handle: RePEc:oup:rcorpf:v:14:y:2025:i:3:p:804-838.
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    File URL: http://hdl.handle.net/10.1093/rcfs/cfae005
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    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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