1. Insolvency Resolution and the Missing High-Yield Bond Markets.
- Author
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Becker, Bo and Josephson, Jens
- Subjects
CORPORATE bankruptcy ,HIGH yield investments ,CORPORATE reorganizations ,BOND market ,BANKRUPTCY reform ,CORPORATE bonds ,RISK assessment -- Mathematical models ,BANKING industry ,MATHEMATICAL models - 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. [ABSTRACT FROM AUTHOR]
- Published
- 2016
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