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Non-Financial Liabilities and Effective Corporate Restructuring

Author

Listed:
  • Becker, Bo
  • Josephson, Jens

Abstract

Many countries' insolvency systems focus on restructuring financial liabilities, and ignore operational liabilities such as leases and long-term supplier contracts. We model insolvency procedures with and without operational restructuring options. Such options avoid excessive liquidation of firms with significant non-financial obligations. Ex-ante, this option should increase debt capacity, especially in industries with inputs supplied under executory contract. We test this hypothesis around the introduction of a new law in Israel which facilitated the rejection of contracts, and by comparing capital structures for industries with high lease obligations between the U.S. and other countries. Empirical results confirm that operating restructuring is a key aspect of insolvency.

Suggested Citation

  • Becker, Bo & Josephson, Jens, 2024. "Non-Financial Liabilities and Effective Corporate Restructuring," CEPR Discussion Papers 19449, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19449
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    File URL: https://cepr.org/publications/DP19449
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    Keywords

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    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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