This study provides evidence that transactions costs discourage debt reductions by financially distressed firms when they restructure their debt out of court. As a result, these firms remain highly leveraged and one-in-three subsequently experience financial distress. Transactions costs are significantly smaller, hence leverage falls by more and there is less recurrence of financial distress, when firms recontract in Chapter 11. Chapter 11 therefore gives financially distressed firms more flexibility to choose optimal capital structures.
If you can't find a tool you're looking for, please click the link at the top of the page to "Go to old article view". Alternatively, view our Knowledge Base articles for additional help. Your feedback is important to us, so please let us know if you have comments or ideas for improvement.