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- Title
Insolvency Resolution and the Missing High-Yield Bond Markets.
- Authors
Becker, Bo; Josephson, Jens
- Abstract
In many countries, poorly functioning bankruptcy procedures force viable but insolvent firms to restructure out of court, where banks may have a bargaining advantage over other creditors. We model the choice of restructuring process and derive implications for the corporate mix of bank and bond financing. Empirical patterns match the model: inefficient bankruptcy in a country is associated with less bond issuance by risky, but not by safe, borrowers. This pattern holds for both levels of and changes in bankruptcy recovery. Our results establish a link between bankruptcy reform and corporate bond markets, especially high-yield markets.
- Subjects
UNITED States; CORPORATE bankruptcy; HIGH yield investments; CORPORATE reorganizations; BOND market; BANKRUPTCY reform; CORPORATE bonds; RISK assessment -- Mathematical models; BANKING industry; MATHEMATICAL models
- Publication
Review of Financial Studies, 2016, Vol 29, Issue 10, p2814
- ISSN
0893-9454
- Publication type
Article
- DOI
10.1093/rfs/hhw014