IDEAS home Printed from https://ideas.repec.org/p/hal/journl/hal-01513995.html
   My bibliography  Save this paper

The Choice Between Informal and Formal Restructuring:

Author

Listed:
  • Régis Blazy
  • J. Martel
  • Nirjhar Nigam

    (ICN Business School, CEREFIGE - Centre Européen de Recherche en Economie Financière et Gestion des Entreprises - UL - Université de Lorraine)

Abstract

This empirical paper investigates the paths leading to the resolution of financial distress for a sample of small and medium-sized French firms in default, focusing in particular on their decisions between bankruptcy and informal (out-of-court) renegotiations. The procedure is depicted as a sequential game in which stakeholders first decide whether to engage in an informal renegotiation. Second, conditional on opting for renegotiation, the debtor and its creditors may succeed or fail in reaching an agreement to restructure the firm’s capital structure. We test different hypotheses that capture (i) coordination and bargaining power issues, (ii) informational problems, (iii) firm characteristics, and (iv) loan characteristics. The empirical implementation is based on sequential LOGIT regressions. First, we find that the likelihood of informal renegotiations increases with loan size and the proportion of long-term debt. These two results support the argument that size matters when deciding whether to opt for informal renegotiation. Second, the probability of a successful renegotiation decreases when (i) the bank in charge of handling the process is the debtor’s “main” creditor and when (ii) the firm is badly rated and its management is considered faulty. Third, the estimations show that collateral plays a significant role in the first stage of the renegotiation process. However, it does not impact the likelihood of success in reaching a renegotiated agreement. Finally, some banks are clearly better than others at leading successful renegotiation processes.

Suggested Citation

  • Régis Blazy & J. Martel & Nirjhar Nigam, 2014. "The Choice Between Informal and Formal Restructuring:," Post-Print hal-01513995, HAL.
  • Handle: RePEc:hal:journl:hal-01513995 DOI: 10.1016/j.jbankfin.2014.04.015 Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01513995
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    References listed on IDEAS

    as
    1. Giovanni Maggi & Gene M. Grossman, 2000. "Diversity and Trade," American Economic Review, American Economic Association, vol. 90(5), pages 1255-1275, December.
    2. Marcus Berliant & Masahisa Fujita, 2008. "Knowledge Creation As A Square Dance On The Hilbert Cube," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(4), pages 1251-1295, November.
    3. John DiNardo & David Card, 2000. "Do Immigrant Inflows Lead to Native Outflows?," American Economic Review, American Economic Association, vol. 90(2), pages 360-367, May.
    4. Susana Iranzo & Fabiano Schivardi & Elisa Tosetti, 2008. "Skill Dispersion and Firm Productivity: An Analysis with Employer-Employee Matched Data," Journal of Labor Economics, University of Chicago Press, vol. 26(2), pages 247-285, April.
    5. Alfonso Irarrazabal & Andreas Moxnes & Karen Helene Ulltveit-Moe, 2013. "Heterogeneous Firms or Heterogeneous Workers? Implications for Exporter Premiums and the Gains from Trade," The Review of Economics and Statistics, MIT Press, vol. 95(3), pages 839-849, July.
    6. Michael Kremer, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 551-575.
    7. Andrea Garnero & Stephan Kampelmann & François Rycx, 2014. "The Heterogeneous Effects of Workforce Diversity on Productivity, Wages, and Profits," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 53(3), pages 430-477, July.
    8. C. Fritz Foley & William R. Kerr, 2013. "Ethnic Innovation and U.S. Multinational Firm Activity," Management Science, INFORMS, pages 1529-1544.
    9. Chiswick, Barry R & Miller, Paul W, 1995. "The Endogeneity between Language and Earnings: International Analyses," Journal of Labor Economics, University of Chicago Press, vol. 13(2), pages 246-288, April.
    10. Alesina, Alberto & La Ferrara, Eliana, 2002. "Who trusts others?," Journal of Public Economics, Elsevier, pages 207-234.
    11. Audretsch, David B & Feldman, Maryann P, 1996. "R&D Spillovers and the Geography of Innovation and Production," American Economic Review, American Economic Association, vol. 86(3), pages 630-640, June.
    12. Yair Mundlak, 1961. "Empirical Production Function Free of Management Bias," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 43(1), pages 44-56.
    13. Hong, Lu & Page, Scott E., 2001. "Problem Solving by Heterogeneous Agents," Journal of Economic Theory, Elsevier, vol. 97(1), pages 123-163, March.
    14. Judith K. Hellerstein & David Neumark, 2007. "Production Function and Wage Equation Estimation with Heterogeneous Labor: Evidence from a New Matched Employer-Employee Data Set," NBER Chapters,in: Hard-to-Measure Goods and Services: Essays in Honor of Zvi Griliches, pages 31-71 National Bureau of Economic Research, Inc.
    15. Pedersen, Peder J. & Pytlikova, Mariola & Smith, Nina, 2008. "Selection and network effects--Migration flows into OECD countries 1990-2000," European Economic Review, Elsevier, vol. 52(7), pages 1160-1186, October.
    16. Giovanni Peri, 2012. "The Effect Of Immigration On Productivity: Evidence From U.S. States," The Review of Economics and Statistics, MIT Press, vol. 94(1), pages 348-358, February.
    17. Edward L. Glaeser & David I. Laibson & José A. Scheinkman & Christine L. Soutter, 2000. "Measuring Trust," The Quarterly Journal of Economics, Oxford University Press, vol. 115(3), pages 811-846.
      • Glaeser, Edward Ludwig & Laibson, David I. & Scheinkman, Jose A. & Soutter, Christine L., 2000. "Measuring Trust," Scholarly Articles 4481497, Harvard University Department of Economics.
    18. Juan Alcacer & Wilbur Chung, 2010. "Location Strategies for Agglomeration Economies," Harvard Business School Working Papers 10-071, Harvard Business School.
    19. Lazear, Edward P, 1999. "Globalisation and the Market for Team-Mates," Economic Journal, Royal Economic Society, vol. 109(454), pages 15-40, March.
    20. James E. Rauch & Alessandra Casella, 2003. "Overcoming Informational Barriers to International Resource Allocation: Prices and Ties," Economic Journal, Royal Economic Society, vol. 113(484), pages 21-42, January.
    21. Carole Maignan & Gianmarco Ottaviano & Dino Pinelli & Francesco Rullani, 2003. "Bio-Ecological Diversity vs. Socio-Economic Diversity: A Comparison of Existing Measures," Working Papers 2003.13, Fondazione Eni Enrico Mattei.
    22. Gianmarco I.P. Ottaviano & Giovanni Peri, 2016. "The economic value of cultural diversity: evidence from US cities," World Scientific Book Chapters,in: The Economics of International Migration, chapter 7, pages 229-264 World Scientific Publishing Co. Pte. Ltd..
    23. Ackerberg, Daniel & Caves, Kevin & Frazer, Garth, 2006. "Structural identification of production functions," MPRA Paper 38349, University Library of Munich, Germany.
    24. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, pages 1263-1297.
    25. Isphording, Ingo E. & Otten, Sebastian, 2014. "Linguistic barriers in the destination language acquisition of immigrants," Journal of Economic Behavior & Organization, Elsevier, vol. 105(C), pages 30-50.
    26. Jens Suedekum & Katja Wolf & Uwe Blien, 2014. "Cultural Diversity and Local Labour Markets," Regional Studies, Taylor & Francis Journals, vol. 48(1), pages 173-191, January.
    27. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2009. "Cultural Biases in Economic Exchange?," The Quarterly Journal of Economics, Oxford University Press, vol. 124(3), pages 1095-1131.
    28. Bombardini, Matilde & Gallipoli, Giovanni & Pupato, Germán, 2014. "Unobservable skill dispersion and comparative advantage," Journal of International Economics, Elsevier, vol. 92(2), pages 317-329.
    29. Barton H. Hamilton & Jack A. Nickerson & Hideo Owan, 2003. "Team Incentives and Worker Heterogeneity: An Empirical Analysis of the Impact of Teams on Productivity and Participation," Journal of Political Economy, University of Chicago Press, vol. 111(3), pages 465-497, June.
    30. Mercedes Delgado & Michael E. Porter & Scott Stern, 2010. "Clusters and entrepreneurship," Journal of Economic Geography, Oxford University Press, vol. 10(4), pages 495-518, July.
    31. Patricia Cortes, 2008. "The Effect of Low-Skilled Immigration on U.S. Prices: Evidence from CPI Data," Journal of Political Economy, University of Chicago Press, vol. 116(3), pages 381-422, June.
    32. Navon, Guy, 2009. "Human Capital Spillovers in the Workplace: Labor Diversity and Productivity," MPRA Paper 17741, University Library of Munich, Germany.
    33. Fidan Ana Kurtulus, 2011. "What Types of Diversity Benefit Workers? Empirical Evidence on the Effects of Co-Worker Dissimilarity on the Performance of Employees," UMASS Amherst Economics Working Papers 2011-11, University of Massachusetts Amherst, Department of Economics.
    34. Evan Osborne, 2000. "The Deceptively Simple Economics of Workplace Diversity," Journal of Labor Research, Transaction Publishers, vol. 21(3), pages 463-476, July.
    35. Linda Barrington & Kenneth R. Troske, 2001. "Workforce Diversity and Productivity: An Analysis of Employer-Employee Match Data," Economics Program Working Papers 01-02, The Conference Board, Economics Program.
    36. Alberto Alesina & Eliana La Ferrara, 2003. "Ethnic Diversity and Economic Performance," Harvard Institute of Economic Research Working Papers 2028, Harvard - Institute of Economic Research.
    37. Chad Sparber, 2010. "Racial Diversity and Macroeconomic Productivity across US States and Cities," Regional Studies, Taylor & Francis Journals, vol. 44(1), pages 71-85.
    38. Jeremy T. Fox & Valérie Smeets, 2011. "Does Input Quality Drive Measured Differences In Firm Productivity?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(4), pages 961-989, November.
    39. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 317-341.
    40. Wooldridge, Jeffrey M., 2009. "On estimating firm-level production functions using proxy variables to control for unobservables," Economics Letters, Elsevier, vol. 104(3), pages 112-114, September.
    41. Chad Sparber, 2009. "Racial Diversity and Aggregate Productivity in U.S. Industries: 1980–2000," Southern Economic Journal, Southern Economic Association, vol. 75(3), pages 829-856, January.
    42. Christian Dustmann & Francesca Fabbri & Ian Preston, 2005. "The Impact of Immigration on the British Labour Market," Economic Journal, Royal Economic Society, vol. 115(507), pages 324-341, November.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    SME; Sequential LOGIT; Bankruptcy; Renegotiation; Banks;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:journl:hal-01513995. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.