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Economic Distress, Financial Distress, and Dynamic Liquidation
Author(s) -
Kahl Matthias
Publication year - 2002
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/1540-6261.00418
Subject(s) - bankruptcy , creditor , financial distress , restructuring , distress , debt , business , finance , financial system , economics , actuarial science , ecology , biology
Many firms emerging from a debt restructuring remain highly leveraged, continue to invest little, perform poorly, and often reenter financial distress. The existing literature interprets these findings as inefficiencies arising from coordination problems among many creditors or an inefficient design of bankruptcy law. In contrast, this paper emphasizes that creditors lack the information that is needed to make quick and correct liquidation decisions. It can explain the long‐term nature of financial distress solely as the result of dynamic learning strategies of creditors and suggests that it may be an unavoidable byproduct of an efficient resolution of financial distress.