Financial Distress and Restructuring Models

Posted: 1 Sep 1999

See all articles by Yeh-Ning Chen

Yeh-Ning Chen

National Taiwan University - Department of Finance

J. Fred Weston

University of California, Los Angeles (UCLA) - Finance Area

Edward I. Altman

New York University (NYU) - Salomon Center; New York University (NYU) - Department of Finance

Abstract

In recent years, the literature on financial distress has been enriched by the development of formal models. This paper develops a synthesis of that formal analysis, linking it to related finance literature and corporate strategies for distressed financial restructuring. Several key assumptions generate different results which predict the effects of financial distress on investment efficiency and restructuring strategy. Central to these strategies are the recontracting arrangements proposed between owners, creditors and other relevant stakeholders. The critical factors in the alternative models are: (1) the term structure of the firm's debt, (2) the role of the seniority of debts, (3) the effects of exchange offers, (4) the effects of an automatic stay on debt payments, and (5) the role of alternative voting rules.

JEL Classification: G10

Suggested Citation

Chen, Yeh-Ning and Weston, J. Fred and Altman, Edward I., Financial Distress and Restructuring Models. Available at SSRN: https://ssrn.com/abstract=6310

Yeh-Ning Chen

National Taiwan University - Department of Finance ( email )

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J. Fred Weston

University of California, Los Angeles (UCLA) - Finance Area ( email )

UCLA-AGSM
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Edward I. Altman (Contact Author)

New York University (NYU) - Salomon Center ( email )

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New York University (NYU) - Department of Finance ( email )

Stern School of Business
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United States

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