Paper #1316

Títol:

Contractual resolutions of financial distress

Autors:

Nicola Gennaioli i Stefano Rossi

Data:

Novembre 2006

Resum:

In a financial contracting model, we study the optimal debt structure to resolve financial distress. We show that a debt structure where two distinct debt classes co-exist - one class fully concentrated and with control rights upon default, the other dispersed and without control rights - removes the controlling creditor's liquidation bias when investor protection is strong. These results rationalize the use and the performance of floating charge financing, debt financing where the controlling creditor takes the entire business as collateral, in countries with strong investor protection. Our theory predicts that the efficiency of contractual resolutions of financial distress should increase with investor protection.

Paraules clau:

Financial Distress, Investor Protection, Financial Contracting

Codis JEL:

G33, K22

Àrea de Recerca:

Macroeconomia i Economia Internacional

Publicat a:

The Review of Financial Studies, Forthcoming

Descarregar el paper en format PDF