Financially Distressed Firms'' Choice Between Private Negotiation and Bankruptcy Protection

• Main Authors: Hsiu-Fen Hsieh, 謝秀芬
• Other Authors: Shean-Bii Chiu
• Format: Others
• Language: zh-TW
• Published: 2002
• Online Access: http://ndltd.ncl.edu.tw/handle/21007533291279552241

碩士 === 國立臺灣大學 === 財務金融學研究所 === 90 === With the proliferation of cases of financially distressed firms since the middle of 1998, there has been growing popular concern about the issues of the corporate restructuring. When enterprise financial distress occurs, it not only harms to its own business, but also directly affects the related business, investors, creditors, stockholders, government and so on. Therefore, a firm that must restructure the terms of its debt contracts to remedy or avoid default is faced with two choices; it can either file for formal restructuring in the court or renegotiate with its creditors privately. This study compares the different financial characteristic of distressed firms to choose between private negotiation and formal corporate restructuring. We analyze a sample of 49 publicly traded companies that experienced severe financial distress during 1995-2000 in Taiwan. In about half of all cases, financially distressed firms restructure their debt outside of the court. The investigation yields a number of insights into the corporate debt restructuring decision. First, we discover that the more the working capital a financially distressed firm has, the easier the firm can obtain an unanimous consent of all creditors whose claims are in default and avoid the holdout problem. Second, we find firms that file for corporate restructuring in the court have relatively less working capital, more short-term and long-term liability than those who privately restructure their debt.