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Corporate Financial Distress and Bankruptcy

A Survey

Corporate Financial Distress and Bankruptcy has moved into a public domain due to the recent global financial crisis that witnessed failures of many venerable institutions that were rescued by the government. This led to landmark legislation in the form of the Dodd-Frank Wall Street Reform and Consumer Protection Act to provide resolution authority similar to private workouts but under government authority. This survey will highlight the resolution mechanisms not only in the private domain but also in the public domain and will use corporate finance paradigms to interpret some of these far-reaching developments in financial distress of systemic nature. Section II provides the institutional features of financial distress and bankruptcy, focusing on the workings of the US bankruptcy system. Section III provides a review of the major theoretical developments in corporate financial distress and bankruptcy. Section IV reviews the available empirical work on financial distress and bankruptcy and examines the question about the extent to which financial distress and bankruptcy costs are significant, and the extent to which these costs are internalized and externalized. The section also highlights important changes that have taken place over the last two decades in both private workouts and court-supervised resolution mechanisms. Section V looks at comparative bankruptcy codes around the world, which tend to vary along creditor rights and financial distress resolution mechanisms. Section VI examines the systemic nature of financial distress and bankruptcy. The authors provide a summary of all the discussions in Section VII so that readers can get a concise overview of the essential topics covered in this survey and some direction for future research on corporate financial distress and bankruptcy.

Section IV reviews the available empirical work on financial distress and bankruptcy and examines the question about the extent to which financial distress and bankruptcy costs are significant, and the extent to which these costs are ...

Corporate Financial Distress and Financial Restructuring Solutions

This thesis identifies typical patterns of corporate financial distress and examines securities issued by different types of firms in order to prevent and resolve financial distress. Existing theories and findings are contrasted with new case study evidence and interview results. The main findings are as follows. First, different distress patterns evoke different financial reengineering and restructuring methods. Firms can potentially avert financial distress by issuing securities when the increased financial distress risks are due to risky assets or poorly designed capital and incentive structures. However, firms cannot avert financial distress by simply issuing securities when the increased distress risks result from poor performance (economic distress). Such firms must engage in turn-around measures to resolve their operational problems. Second, financial instruments employed in and prior to financial distress very often represent some type of mezzanine finance, though the securities may differ substantially with regard to allocated cash flow and control rights, depending on the type of distress. In financial distress, the recognition that security issues not only raise funds but, in addition, allocate cash flow rights, control rights, and liquidation rights, becomes increasingly important. Third, financing decisions of financially sound firms differ from the financing decision of firms approaching or entering financial distress. Specifically, the financing decision of such firms is determined by (1) the firm's asset risks and the associated cash flow variance, (2) its operating performance, and (3) its existing debt level (leverage) and debt structure. Overall, firms seeking to prevent or attenuate financial distress issue securities that mitigate conflicts of interest, overcome information problems, and transfer risks to new investors. The mezzanine instruments employed can be more debt-like. Firms seeking to resolve f...L.

The mezzanine instruments employed can be more debt-like. Firms seeking to resolve f ... L.

Corporate Financial Distress

A Complete Guide to Predicting, Avoiding, and Dealing with Bankruptcy

A comprehensive guide to predicting and dealing with corporate bankruptcy: how to anticipate financial crisis, manage a financial turnaround, and handle the legal, accounting and investment implications of bankruptcy. Discusses failure prediction and develops specific and aggregate business failure models for analyzing both private and publicly held firms. Provides complete documentation and analysis of failure prediction models in ten countries.

A comprehensive guide to predicting and dealing with corporate bankruptcy: how to anticipate financial crisis, manage a financial turnaround, and handle the legal, accounting and investment implications of bankruptcy.

Corporate Financial Distress and Bankruptcy

Predict and Avoid Bankruptcy, Analyze and Invest in Distressed Debt

A comprehensive look at the enormous growth and evolution of distressed debt, corporate bankruptcy, and credit risk default This Third Edition of the most authoritative finance book on the topic updates and expands its discussion of corporate distress and bankruptcy, as well as the related markets dealing with high-yield and distressed debt, and offers state-of-the-art analysis and research on the costs of bankruptcy, credit default prediction, the post-emergence period performance of bankrupt firms, and more.

Predict and Avoid Bankruptcy, Analyze and Invest in Distressed Debt Edward I.
Altman, Edith Hotchkiss. the poor performance of a firm is caused by the financial
distress itself (and therefore is an indirect cost), or whether it is caused by the ...