It Takes Two To Tango: an empirical tale of distressed firms and assisting banks

Abe de Jong

ERIM Report Series Research in Management from Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam

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 guided 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 guide firms in their restructuring effort and that their assistance is of crucial importance to the success of the restructuring. However, some firms do not benefit from this assistance, because firms need to be prepared to undertake radical operational changes before bank assistance is forthcoming.

Keywords: bankruptcy; debt restructuring; financial distress; reorganization (search for similar items in EconPapers)
JEL-codes: G21 G3 G33 K22 K33 M M41 (search for similar items in EconPapers)
Date: 2004-08-06
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