Bank responses to corporate reorganization: evidence from Brazil (original) (raw)
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Bank Responses to Corporate Reorganization: Evidence from an Emerging Economy
BAR - Brazilian Administration Review
This study analyzes a unique dataset of 125 corporate reorganization filings in Brazil from 2006 to 2016 to understand the role of bank creditor seniority in bankruptcy outcomes of small-and medium-sized companies. We find that conflict between bank creditor classes is relevant for explaining reorganization outcomes and that it occurs when organizations are in the money. Additionally, bank seniority matters more than the bank's debt share for explaining bankruptcy outcomes in creditor-oriented regimes. Finally, we find a concave relationship between favorable votes and the number of banks involved and between favorable votes and a company's age.
SSRN Bankruptcy, reorganization & creditors e-journal, 2020
Some bankruptcy judges in Brazil have been ignoring statutory provisions commanding forced liquidation in the event a debtor fails to obtain confirmation of its reorganization plan. They do it because they believe preserving the firm maximizes value to those involved and that creditors’ voting for rejection act egotistically. I argue that these judges are mistaken and that their decisions have had unintended but foreseeable negative consequences, resulting in relevant social losses. Due to current incentives structure, bad plans will be approved, and only those that are unacceptable will be rejected. If a plan is so bad that does not get approval by creditors, debtor should not be allowed an opportunity to attempt to reorganize. To confirm my argument, I analyze the results of reorganizations where a rejected plan was forcefully imposed by courts, and in most of the cases I find that the consequences of court’s decisions were contrary to the intended objectives. The results of this paper are relevant because court decisions that ignore statutory commands are justified by a belief that reorganizations will result in value maximization for stakeholders, a belief I show to be wrong.
Corporate Financial Distress and Reorganization: A Survey of Theoretical and Empirical Contributions
Review of Business Management
Purpose-This paper presents both a theoretical and empirical review of the bankruptcy and reorganization literature. We point out the main articles developed in the field and present a group of studies carried out after the approval of the new bankruptcy law in Brazil. Design/methodology/approach-This paper provides a survey of the literature on bankruptcy and corporate reorganization. We investigate classic and recent papers in the field and present the results of some Brazilian studies that consider the announcement of the Brazilian bankruptcy law in 2005. Findings-We show that information asymmetry, coordination problems, and heterogeneity between creditors are pivotal to the resolution of financial distress. Moreover, the choice of restructuring is made according to the least-cost alternative. We discuss the practical implications of the literature by analyzing three cases of reorganization in Brazil and reveal that the complexity of each case can drive the decision to approve or reject the reorganization plan. Originality/value-We investigate the evolution of the bankruptcy and reorganization literature and provide a survey that explores both the international and Brazilian literature.
Quiet Life No More? Corporate Bankruptcy and Bank Competition
Journal of Financial and Quantitative Analysis, 2018
Pursuing delinquent borrowers requires considerable effort, and creditors may lack the incentive to exert this costly effort in uncompetitive banking sectors. To examine this, we use a uniquely large data set of public and private corporate bankruptcy filings spanning a banking-sector reform that deregulated bank entry across different regions of India. We find that increased banking competition is associated with more firms seeking a stay on assets, a decline in bankruptcy duration, and a shift toward workouts rather than liquidations. The results are consistent with creditors exerting greater effort to pursue delinquent firms and resolve bankruptcies more quickly when competition increases.
Corporate Debt Restructuring, Bank Competition and Stability: Evidence from creditors’ perspective
2015
This paper estimates the causal effect of a unique programme of corporate debt restructuring (CDR) on stability of Indian banks over the period 1992-2012. The banks who participated in the programme were extended regulatory forbearance on asset classification and provisioning on the restructured corporate loans. We find that banking stability of the participated banks increases substantially after the implementation of the programme. Using stochastic frontier analysis approach, we estimate two variant measures of market power and investigate the interactive effect of CDR on bank stability. The result shows that the positive effect of CDR on stability declines at higher level of market power, implying that the CDR mechanism is less effective for the participating banks beyond a threshold level of market power. We also find that the second phase of deregulation and the direct effect of market power have significant positive effect on the overall soundness of Indian banks. To provide u...
Do Reorganization Costs Matter for Efficiency? Evidence from a Bankruptcy Reform in Colombia
Journal of Law and Economics, 2010
An efficient bankruptcy system should liquidate nonviable businesses and reorganize viable ones. The importance of this filtering process has long been recognized in the literature; the typical reason advanced for its failure has been biases (in codes or among judges). In this paper we show that bankruptcy costs can be another source of such filtering failure. We illustrate this with the Colombian reform of 1999. Using data from 1,924 firms filing for bankruptcy between 1996 and 2003, we find that the prereform reorganization proceedings were so inefficient that the bankruptcy system failed to separate economically viable firms from inefficient ones. In contrast, by streamlining the reorganization process, the reform contributed to the improvement of the selection of viable firms into reorganization. In this sense, the new law increased the efficiency of the bankruptcy system in Colombia. We wish to thank Fernando Montes-Negret for sparking our interest in this topic, Enrique Aguirre and the Superintendencia de Sociedades for the data, and Rodolfo Danies Lacouture, the superintendent, for insightful comments on an earlier draft. We also wish to thank Jaime Alberto Gomez, Jorge Pinzó n, Adolfo Rouillon, Felipe Trias, and Carlos Urrutia for very useful conversations about the intricacies of bankruptcy law in Colombia. Finally, we wish to thank Rei Odawara for excellent research assistance, Anup Malani and a referee for helpful suggestions, and
Corporate restructuring: empirical evidence on the approval of the reorganization plan
RAUSP Management Journal, 2018
When a corporation presents a reorganization plan, it expects its creditors to approve the plan. This paper provides empirical evidence regarding the likelihood of approval based on reorganization plans for creditors in Brazil that require approval by employees; and by secure and unsecure debtholders. This paper involves a descriptive analysis of the main characteristics of reorganization plans by type of vote. Using a sample of 120 reorganization plans proposed by corporations from 2005 to 2014, we find that the labor class of creditors is likely to approve the reorganization plan even when the plan is rejected; plans with more heterogeneous payment for classes are less likely to
Determinants of Delays in Corporate Reorganizations
Review of Business Management
Purpose-Firms and creditors may delay certain decisions in corporate reorganizations because of actions that require coordination. This paper investigates delays in voting on reorganization plans during claimholder general meetings in Brazil. Design/methodology/approach-Using a sample of 120 hand-collected reorganization plans, we present descriptive and regression (OLS, Poisson, negative binomial, and quantile) analyses to show the primary characteristics of delayed votes. Findings-Our results revealed that a high concentration of debt among the different classes of claimholders appeared to be related to fewer delays. Moreover, a higher number of banks and secured creditors with claims in the reorganization appeared to be positively correlated with delays. Finally, we argue that reorganization plans that require additional time to reach a vote are related to divestment proposals. Originality/value-There is still a lack of empirical results based on evaluations of multiple creditor characteristics and the reorganization proposals presented in firms' reorganization plans. This is the first paper in Brazil to explore how conflicts of interest among different classes of creditors may relate to delays. Our paper contributes to the literature developed by Gilson (1990), Gilson et al.
Corporate debt restructuring: Evidence on lender coordination in financial distress
Research Papers in Economics, 2001
In the recent theoretical literature on lending risk, the common pool problem in multi-bank relationships has been analyzed extensively. In this paper we address this topic empirically, relying on a unique panel data set that includes detailed credit-fie information on distressed lending relationships in Germany. In particular, it includes information on bank pools, a legal institution aimed at coordinating lender interests in borrower distress. We find that the existence of small bank pools increases the probability of workout success and that coordination costs are positively related to pool size. We identify major determinants of pool formation, in particular the distribution of lending shares among banks, the number of banks, and the severity of the distress shock to the borrower.