Shareholder-Creditor Conflict and the Resolution of Financial Distress

Yongqiang Chu, Ha Diep-Nguyen, Jun Wang, Wei Wang and Wenyu Wang

The Review of Corporate Finance Studies, 2025, vol. 14, issue 3, 804-838

Abstract: Constructing a comprehensive data set of financially distressed firms that restructured their debts from 2000–2014, we find that firms with financial institutions’ loan-equity simultaneous holdings are more likely to restructure out of court than to file for bankruptcy. The effect is stronger when loans are oversecured and when the expected bankruptcy costs are larger. We use mergers of financial institutions and instrumental variable estimations to address potential endogeneity concerns. Firms with simultaneous holdings experience higher stock returns. The evidence suggests that mitigating shareholder-creditor conflict results in cost-effective resolutions of financial distress.

Keywords: G20; G30; G33 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:oup:rcorpf:v:14:y:2025:i:3:p:804-838.

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