Publication Type
Journal Article
Version
publishedVersion
Publication Date
9-2022
Abstract
We show that securities issued by a distressed firm, often through exchange offers, providethe most efficient resolution of financial restructuring. Information asymmetry between thefirm-bank coalition and small bondholders gives rise to other forms of distress resolutionsuch as refinancing, public workout, and the inefficiency of liquidation. We find that politicallobbying by the firm-bank amplifies these inefficiencies and inhibits the development of privatemarket for distressed securities. Cross-country evidence is consistent with this and indicatesthat improved creditor rights, and information facilitating credit bureaus interact in reducingthe likelihood of inefficient distress resolution.
Keywords
Bankruptcy, exchange offers, political connections, lobbying, asymmetric information, D82, G33, G30, K49
Discipline
Finance | Political Economy
Research Areas
Applied Microeconomics
Publication
Economic Modelling
Volume
114
First Page
1
Last Page
11
ISSN
0264-9993
Identifier
10.1016/j.econmod.2022.105901
Citation
ANEY, Madhav S. and BANERJI, Sanjay.
Political connections, informational asymmetry, and the efficient resolution of financial distress. (2022). Economic Modelling. 114, 1-11.
Available at: https://ink.library.smu.edu.sg/soe_research/2218
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1016/j.econmod.2022.105901