The effects of bank relationships on firm private debt restructuring: Evidence from an emerging market

Our paper seeks to examine the direct benefit of bank relationships for a distressed borrower by assessing its influence on the success of firm private debt restructuring. We find that a distressed firm with a stronger bank relationship has a greater probability to successfully restructure its debt...

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Bibliographic Details
Published in:Research in international business and finance 2011, Vol.25 (1), p.113-125
Main Authors: Huang, Jiang-Chuan, Huang, Chin-Sheng
Format: Article
Language:English
Subjects:
Bank relationship
Bank relationship Debt restructuring Private renegotiation Financial distress
Debt restructuring
Financial distress
Private renegotiation
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Summary:Our paper seeks to examine the direct benefit of bank relationships for a distressed borrower by assessing its influence on the success of firm private debt restructuring. We find that a distressed firm with a stronger bank relationship has a greater probability to successfully restructure its debt through private renegotiation. Accordingly, an analysis of credit rating recovery provides complementary evidence on the factors of successful debt restructuring. A duration analysis of the length of time needed for a debt restructuring to be completed is fully consistent with our documented results. We conclude that in a bank dominated financial system like Taiwan's where firms are heavily bank-dependent, the bank–firm relationship is of crucial importance to the success of financially distressed firms in private debt restructuring.
ISSN:0275-5319
1878-3384
DOI:10.1016/j.ribaf.2010.09.001