Debt Renegotiation and Investment Decisions Across Countries
Event details
| Date | 16.01.2015 |
| Hour | 10:30 › 12:00 |
| Speaker | Enrique SCHROTH (Cass Business School) |
| Location | |
| Category | Conferences - Seminars |
We show that the prospect of a successful debt renegotiation in default reduces debt overhang and induces shareholders of distressed firms to underinvest less, dismiss less assets, and take on less risk. We identify these effects in the data via the exogeneous variation in debt renegotiation procedures prescribed by bankruptcy codes across 41 countries. Consistent with our theory, we find that the effects of debt renegotiation frictions operate through their interactions with the expected creditors' recovery conditional on default. These effects are large, statistically signi ficant, and point to beneficial ex-post implications of weaker debt enforcement procedures.
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