It takes two to tango: An empirical tale of distressed firms and assisting banks

Oscar Couwenberg, Abe de Jong

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16 Citations (Scopus)

Abstract

We study the restructuring process of small and medium-sized firms in financial distress. We have a unique dataset with firms in the Netherlands that are assisted in their restructuring effort by banks. Part of our dataset consists of firms that successfully restructure their operations and obligations with the help of their bank. Another part consists of firms that, despite the assistance of their bank, did not succeed in reorganizing their operations and finances. Our empirical test predicts success and failure in restructuring. We find that banks play a role in the firms' restructuring efforts and that this assistance is of crucial importance to the success of the restructuring. We conclude that the harsh bankruptcy rules in the Netherlands support private negotiations between financially distressed firms and their banks.

Original languageEnglish
Pages (from-to)429-454
Number of pages26
JournalInternational Review of Law and Economics
Volume26
Issue number4
DOIs
Publication statusPublished - 1 Dec 2006
Externally publishedYes

Keywords

  • Bankruptcy
  • Debt restructuring
  • Financial distress
  • Reorganization

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