Comparison of Efficiency between Workouts and Court Receiverships

Abstract

Workouts under the Corporate Restructuring Promotion Act and court receiverships under the Debtor Rehabilitation and Bankruptcy Act are the most common corporate restructuring methods for financially distressed firms in Korea. Using financial data of 32 court receivership firms and 30 workout firms for a seven-year period, we examine whether two different types of corporate restructuring (i.e., workouts and court receiverships) result in financially distressed firms improving efficiency differentially in the period following workouts or court receiverships. We find that the positive impact of workouts on the aggregate and technical efficiency of financially distressed firms is higher than that of court receiverships on the aggregate and technical efficiency of other financially distressed firms.