Distressed Investment, Corporate Debt Liquidity, and Capital Structure

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• Alex Gorbenko (UCL)
• Thursday 18 May 2023, 12:45-14:00
• CJBS, room W202.

If you have a question about this talk, please contact Daniel Simmons.

We examine liquidity of corporate debt and capital structure of the firm run by inefficient management in the presence of a distressed investor in the secondary debt market. In addition to having superior information about the firm’s future cash flows, the distressed investor can install a more efficient management and restructure the firm in bankruptcy. An unexpected arrival of the investor negatively impacts liquidity of existing debt claims. However, liquidity is more nuanced when firms choose their capital structure in expectation of the distressed investor. In particular, if value added from restructuring is sufficiently high in deep default states, liquidity of senior claims optimally issued by the firm can still be low. We derive testable implications and examine the impact of various Bankruptcy Code provisions on liquidity and capital structure of the firm.

This talk is part of the CERF and CF Events series.

This talk is included in these lists:

• All Talks (aka the CURE list)
• CERF and CF Events
• CJBS, room W202
• Cambridge Finance Workshop Series
• Cambridge Judge Business School
• Interested Talks

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