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Court-supervised Restructuring: Pre-bankruptcy Dynamics, Debt Structure and Debt Rescheduling

  • B. LEYMAN

    ()

  • K. SCHOORS

    ()

  • P. COUSSEMENT

    ()

We analyze the debt dynamics of corporations that reorganize under Belgian court-supervised restructuring, using a unique sample of small corporations. Small firms systematically accumulate unsecured trade credit and unpaid taxes and social contributions in the running up to bankruptcy-reorganization. First, small firms accumulate overdue taxes and social contributions, pushing the government administration in the unintended role of lender of last resort during the pre-bankruptcy period. Second, we find that the pecking order theory and specific trade credit theories predict the levels of trade credit accumulated during the pre-bankruptcy period very well. Our findings suggest that pre-bankruptcy dynamics strongly affect the debt structure at the moment of initiation of the procedure and in this way the ultimate outcome of the restructuring process.

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Paper provided by Ghent University, Faculty of Economics and Business Administration in its series Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium with number 08/507.

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Length: 45 pages
Date of creation: Apr 2008
Date of revision:
Handle: RePEc:rug:rugwps:08/507
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Web page: http://www.ugent.be/eb

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  2. Julian Franks & Oren Sussman, 2005. "Financial Distress and Bank Restructuring of Small to Medium Size UK Companies," Review of Finance, Springer, vol. 9(1), pages 65-96, 03.
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  4. T.C.G. Fisher & J. Martel, 2000. "Empirical Estimates of Filtering Failure in Court-Supervised reorganization," THEMA Working Papers 2000-45, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  5. Petersen, Mitchell A & Rajan, Raghuram G, 1997. "Trade Credit: Theories and Evidence," Review of Financial Studies, Society for Financial Studies, vol. 10(3), pages 661-91.
  6. Shleifer, Andrei & Vishny, Robert W, 1992. " Liquidation Values and Debt Capacity: A Market Equilibrium Approach," Journal of Finance, American Finance Association, vol. 47(4), pages 1343-66, September.
  7. Fisher, Timothy C G & Martel, Jocelyn, 1995. "The Creditors' Financial Reorganization Decision: New Evidence from Canadian Data," Journal of Law, Economics and Organization, Oxford University Press, vol. 11(1), pages 112-26, April.
  8. Raghuram G. Rajan & Luigi Zingales, 1994. "What Do We Know About Capital Structure? Some Evidence from International Data," NBER Working Papers 4875, National Bureau of Economic Research, Inc.
  9. Hotchkiss, Edith Shwalb, 1995. " Postbankruptcy Performance and Management Turnover," Journal of Finance, American Finance Association, vol. 50(1), pages 3-21, March.
  10. Helwege, Jean & Liang, Nellie, 1996. "Is there a pecking order? Evidence from a panel of IPO firms," Journal of Financial Economics, Elsevier, vol. 40(3), pages 429-458, March.
  11. Shyam-Sunder, Lakshmi & C. Myers, Stewart, 1999. "Testing static tradeoff against pecking order models of capital structure," Journal of Financial Economics, Elsevier, vol. 51(2), pages 219-244, February.
  12. Weiss, Lawrence A., 1990. "Bankruptcy resolution: Direct costs and violation of priority of claims," Journal of Financial Economics, Elsevier, vol. 27(2), pages 285-314, October.
  13. Frank, Murray Z. & Goyal, Vidhan K., 2003. "Testing the pecking order theory of capital structure," Journal of Financial Economics, Elsevier, vol. 67(2), pages 217-248, February.
  14. Paul Asquith & Robert Gertner & David Scharfstein, 1991. "Anatomy of Financial Distress: An Examination of Junk-Bond Issuers," NBER Working Papers 3942, National Bureau of Economic Research, Inc.
  15. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  16. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
  17. Vanacker, T. & Manigart, S., 2007. "Incremental financing decisions in high growth companies: pecking order and debt capacity considerations," Vlerick Leuven Gent Management School Working Paper Series 2007-22, Vlerick Leuven Gent Management School.
  18. Gilson, Stuart C. & John, Kose & Lang, Larry H. P., 1990. "Troubled debt restructurings*1: An empirical study of private reorganization of firms in default," Journal of Financial Economics, Elsevier, vol. 27(2), pages 315-353, October.
  19. Fan, Wei & White, Michelle J, 2003. "Personal Bankruptcy and the Level of Entrepreneurial Activity," Journal of Law and Economics, University of Chicago Press, vol. 46(2), pages 543-67, October.
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  21. Ronen, Joshua & Sorter, George H, 1972. "Relevant Accounting," The Journal of Business, University of Chicago Press, vol. 45(2), pages 258-82, April.
  22. Timothy C. G. Fisher & Jocelyn Martel, 1994. "Will the Bankruptcy Reform Work? An Empirical Analysis of Financial Reorganization in Canada," Canadian Public Policy, University of Toronto Press, vol. 20(3), pages 265-277, September.
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