Anatomy of Out-of-Court Debt Workouts for SMEs

Tomohito Honda, Arito Ono, Iichiro Uesugi and Yukihiro Yasuda

No DP24-2, RCESR Discussion Paper Series from Research Center for Economic and Social Risks, Institute of Economic Research, Hitotsubashi University

Abstract: In this study, we use a detailed and comprehensive dataset on out-of-court debt workouts for distressed small and medium-sized enterprises in Japan to describe characteristics of these workouts. We then investigate their determinants and the subsequent effects on firm performance. We find that most debt restructurings involve a rescheduling (deferral of debt repayment). In contrast, firms infrequently use more drastic measures, some of which reduce their debt overhang. For the determinants, firms with operating surpluses and negative net worth are more likely to take a drastic measure to restructure debt, which is consistent with the debt overhang theory. Firms with operating surpluses are more likely to adopt measures to hold management responsible and to use new outside executives. For performance, firms that use drastic debt restructurings have better gross sales and profits. Firms that use restructuring to hold management more responsible reduce employment and improve profits. These results indicate that firms that use measures to reduce their debt overhang and limit their moral hazard improved their performance.

Keywords: out-of-court debt workouts; debt overhang; moral hazard; zombie firms (search for similar items in EconPapers)
JEL-codes: G21 G33 G34 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2024-02
New Economics Papers: this item is included in nep-cfn, nep-ent and nep-sbm
Note: 5 December, 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/83090/dp24-2_rcesr.pdf

Related works:
Working Paper: Anatomy of Out-of-court Debt Workouts for SMEs (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hit:rcesrs:dp24-2

Access Statistics for this paper

More papers in RCESR Discussion Paper Series from Research Center for Economic and Social Risks, Institute of Economic Research, Hitotsubashi University Contact information at EDIRC.
Bibliographic data for series maintained by Digital Resources Section, Hitotsubashi University Library ().