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Strategic Debt Restructuring

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  • Noe, Thomas H
  • Wang, Jun

Abstract

We analyze a distressed firm indebted to many creditors. The firm's owners have the option of choosing the sequence of restructuring negotiations with the creditors. We show that sequencing flexibility is beneficial to firm owners, and that the optimal sequencing of restructuring negotiations involves exploiting the firm's liabilities to some creditors so as to moderate the demands of others. Moderately distressed firms will extract concessions from all creditors. In this case, owners can gain if they can credibly commit to conditional restructuring agreements that link the concessions of one creditor to concessions by others. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Suggested Citation

  • Noe, Thomas H & Wang, Jun, 2000. "Strategic Debt Restructuring," The Review of Financial Studies, Society for Financial Studies, vol. 13(4), pages 985-1015.
    • Handle: RePEc:oup:rfinst:v:13:y:2000:i:4:p:985-1015
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    Citations

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    Cited by:

    1. Norman Saleh & Kamran Ahmed, 2005. "Earnings management of distressed firms during debt renegotiation," Accounting and Business Research, Taylor & Francis Journals, vol. 35(1), pages 69-86.
    2. Daniels, Kenneth N. & Hurtado, Fernando Díaz & Ramírez, Gabriel G., 2013. "An empirical investigation of corporate bond clawbacks (IPOCs): Debt renegotiation versus exercising the clawback option," Journal of Corporate Finance, Elsevier, vol. 20(C), pages 14-21.
    3. Chongvilaivan, Aekapol & Hur, Jung & Riyanto, Yohanes E., 2013. "Labor union bargaining and firm organizational structure," Labour Economics, Elsevier, vol. 24(C), pages 116-124.
    4. Jiang, Jinglu & Liu, Bo & Yang, Jinqiang, 2019. "The impact of debt restructuring on firm investment: Evidence from China," Economic Modelling, Elsevier, vol. 81(C), pages 325-337.
    5. Zheng, Shiyuan & Negenborn, Rudy R., 2015. "Price negotiation between supplier and buyer under uncertainty with fixed demand and elastic demand," International Journal of Production Economics, Elsevier, vol. 167(C), pages 35-44.
    6. Mahesh Nagarajan & Yehuda Bassok, 2008. "A Bargaining Framework in Supply Chains: The Assembly Problem," Management Science, INFORMS, vol. 54(8), pages 1482-1496, August.
    7. Lars Schweizer & Andreas Nienhaus, 2017. "Corporate distress and turnaround: integrating the literature and directing future research," Business Research, Springer;German Academic Association for Business Research, vol. 10(1), pages 3-47, June.
    8. Marx, Leslie M. & Shaffer, Greg, 2007. "Rent shifting and the order of negotiations," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 1109-1125, October.
    9. Abhi Bhattacharya & Joseph Johnson & Ashkan Faramarzi & Niket Jindal & Ross W. Johnson, 2024. "Marketing capability and the turnaround of financially distressed firms," Journal of the Academy of Marketing Science, Springer, vol. 52(4), pages 1195-1215, July.
    10. Stephen L. Buschbom & James B. Kau & Donald C. Keenan & Constantine Lyubimov, 2021. "Delinquencies, Default and Borrowers' Strategic Behavior toward the Modification of Commercial Mortgages," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 49(3), pages 936-967, September.

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