Economic Distress, Financial Distress, and Dynamic Liquidation

Posted: 22 Nov 2003

See all articles by Matthias Kahl

Matthias Kahl

University of California, Los Angeles (UCLA) - Anderson School of Management

Abstract

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.

Suggested Citation

Kahl, Matthias, Economic Distress, Financial Distress, and Dynamic Liquidation. Journal of Finance, Vol. 57, pp. 135-168, 2002, Available at SSRN: https://ssrn.com/abstract=309157

Matthias Kahl (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095
United States

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