Non-Financial Liabilities and Effective Corporate Restructuring

Bo Becker, Jens Josephson and Hongyi Xu
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Hongyi Xu: Stockholm School of Economics

No 1477, Working Paper Series from Research Institute of Industrial Economics

Abstract: Many insolvency systems focus on restructuring financial liabilities, and ignore operational liabilities such as leases and long-termsupplier contracts. We model the U.S. option to reject such contracts and find that it avoids excessive liquidation of firms with significant non-financial obligations and increases debt capacity ex ante. Using text analysis and accounting data to measure the extent of executory contracts, we test the debt capacity hypothesis using difference-in-difference tests comparing the U.S. to countries where rejection is limited and the introduction of rejection in Israel in 2019. We find operating restructuring is a key aspect of insolvency with a large impact on corporate capital structures.

Keywords: Bankruptcy; Restructuring; Executory contracts (search for similar items in EconPapers)
JEL-codes: G32 G33 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2023-10-30, Revised 2024-11-28
New Economics Papers: this item is included in nep-cfn and nep-cta
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:iuiwop:1477

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