Bankruptcy Filings Research Articles

Bank relationship and contractual flexibility: Evidence from covenant enforcement

AbstractThis paper investigates how banks utilize soft information to provide contractual flexibility in loan covenant enforcement. We find that relationship lenders are significantly less likely than non‐relationship lenders to enforce covenants for material violations when borrowers are potentially in breach of financial covenants. The mitigation of information asymmetry by relationship lending, as opposed to alternative explanations, serves as the underlying mechanism. Furthermore, relationship borrowers with potential covenant breaches are less likely to experience increases in loan interest rates after renegotiation, to adopt conservative financial or investment policies, or to file for bankruptcy. Following potential covenant breaches of borrowers, relationship banks are better able to preserve regulatory capital and secure future lending business. Our findings suggest that soft information accumulated during lending relationships is vital for banks to provide contractual flexibility.

A primer on Chapter 11 bankruptcy filings: why the genders of the CEO and judge (may) matter

This study investigates the impact of CEO gender on corporate bankruptcy outcomes and how this impact is influenced by the gender of the presiding judge. Using logistic regression, we find that if the bankruptcy judge is male, female-led firms emerge from bankruptcy filings less often than male-led firms, even when we control for CEO-, firm-, industry-, and bankruptcy-level explanatory factors. We argue that our outcomes mainly result from a similarity bias in which judges prefer CEOs of their own gender. Female- and male-led firms are comparable except for female-led firms showing higher pre-filing cash levels. Hence, we posit that judges do not stereotype based on systematic differences between female- and male-led firms but instead based on internalized prejudices towards female CEOs.

The efficiency of bankruptcy proceedings and the severity of insolvency regulations in view of the implementation of the New Opportunity Policy

Abstract The article investigates the relationship between the efficiency of insolvency proceedings, as measured by their duration, and measures the severity of bankruptcy law toward debtors in 27 countries, of which 23 are EU. This objective was achieved using quantitative methods – Pearson’s correlation, pooled panel regression and Granger causality. Research shows no direct correlation between the two variables mentioned above. The increase in sanctions in bankruptcy law contributed to a decrease in the efficiency of insolvency proceedings. In addition, less stringent conditions concerning the time taken to file a bankruptcy petition translated into a shorter duration of insolvency proceedings. Therefore, supporting the New Opportunity Policy, we recommend that regulators focus on softening the legal requirements for filing a bankruptcy petition, for setting a time limit for filing and on reducing the sanctions for honest debtors, including those imposed for failure to file for bankruptcy within the period prescribed by law.

Juridical Analysis of State-Owned Enterprises (BUMN) with Bankruptcy Status

Bankrupt BUMN is not as simple as bankruptcy of a person or other legal entity, because this BUMN has state assets whose management must involve state intervention. Government intervention is proven by the presence of the Minister of Finance as CFO and majority owner of BUMN and the Minister of BUMN as director and supervisor of BUMN activities, apart from that there are supporting regulations, namely the KN Law, PN Law and Constitutional Court Decision No. 62/PUU-XI/2013 which notes that wealth separated from BUMN remains state wealth. If a state company is bankrupted by its own debtor, the finance minister has the largest say in the state-owned bankruptcy application than the GMS, in Peru the finance minister has the highest power and is the only party. who can file bankruptcy. The legal consequence of BUMN bankruptcy is that a public confiscation is carried out, but first the BUMN must go through a process of paying state assets in accordance with Minister of Finance Regulation No. 50/PMK.06/2014 because BUMN goods are still considered state-owned goods.

Exposure to superstar firms and financial distress

AbstractA few highly successful firms (“superstar firms”) have captured large market shares and earned massive profits in recent decades. We examine whether superstar firms are associated with a greater likelihood of financial distress for firms exposed to them in product markets. Building on recent research, we identify superstars as firms with the highest markups in the industry and whose industry markup share increases over time. We then measure, with product similarity scores, a firm’s overall product market exposure to superstars. We document that firms with greater exposure are more likely to file for bankruptcy. We examine why superstar exposure is associated with bankruptcy and show that firms with the greater superstar exposure exhibit weaker financial performance and greater riskiness. Furthermore, we show that the association between superstar exposure and the likelihood of bankruptcy strengthens when superstars have greater market power.

Association between patient-reported financial burden and catastrophic health expenditures in cancer survivors

PurposeTo measure rates of patient-reported financial burden, compare them across cancer types, and determine whether they are predictive of catastrophic health expenditures (CHE). MethodsWe extracted data from the Medical Expenditures Panel Survey from 2011 to 2017 to conduct a retrospective population-based cohort study and multivariable logistic regression to assess the financial burden of cancer across 16 cancer types and compare patient-reported metrics to CHE rates. ResultsPatients with ovarian cancer were most likely to report inability paying bills (34.5 %) and filing for bankruptcy (9.4 %), while patients with thyroid cancer were most likely to incur debt (22.4 %). Patients with kidney cancer had the highest mean debt ($46,915). CHEs were independently predicted by inability to pay medical bills (OR [95 % CI], 1.96 [1.14–3.35]) and bankruptcy filing (OR [95 % CI], 3.90 [1.21–12.60]. Conclusions and implicationsWe report important variations in the financial burden across cancer types and underscore the importance of assessing how patient-reported measures are related to CHEs. Policy implications. The financial burden of cancer care could explain the lack of improved outcomes with increased national health spending.

The Effect of Liquidity, Profitability, Leverage and Activity on Financial Distress

Financial difficulties are a problem that occurs in company liquidity, difficult to solve if there is no change in the company structure. When financial difficulties occur, companies experience a lack of working capital. Lack of working capital can be caused by high operating costs or liabilities. Companies experiencing financial difficulties will file for bankruptcy, however there are some companies that do not do this, because the company is still able to survive amidst the problems that occur. The aim of the research is to see how liquidity, profitability, leverage and activity influence financial distress in transportation companies listed on the Indonesian stock exchange in 2018-2022. The research method uses a quantitative descriptive research design with SPSS 26 as a data analysis tool. The research population was 46 transportation companies and the sampling technique used purposive sampling as many as 8 transportation companies listed on the Indonesian Stock Exchange. The research results show that liquidity and activity have no effect on financial distress. Profitability has been significant positive effect on financial distress. Leverage has a negative and significant effect on financial distress. Simultaneously, liquidity, profitability, leverage and activity have a positive and significant effect on financial distress.

Tension in Financial Reporting: Reacting to a Peer Bankruptcy Announcement

We investigate if and how a peer’s bankruptcy affects financial reporting by other firms within the industry. Prior research documents that the bankruptcy filing of a peer firm has negative capital market effects on other firms within the industry (lower stock market value and higher cost of debt). We argue that firms within an industry experiencing peer bankruptcies modify their financial reporting to mitigate such negative capital market effects. However, tension arises as to whether such modification is toward more conservative accounting or the opposite. Using a large sample of firms from 1980 to 2018, we find that following a peer firm bankruptcy filing, other firms within the industry exhibit a rise in conditional conservatism in their financial reporting. Our findings are robust to a battery of tests including the exclusion of distressed industries, the 2000 dot-com crash period, and the 2008 financial crisis period as well as employing an alternative proxy for conditional conservatism. The results are not significant for placebo bankruptcies 1 and 2 years before actual bankruptcies. Further analyses show that the spillover effects are more pronounced for firms in homogeneous industries, which exhibit higher leverage, with strong governance mechanisms, and in industries that experience strong market reaction following peer bankruptcy announcements. We also find that the bankruptcy filing of larger and older firms leads to stronger spillover effects.

The Problem of Filing for Bankruptcy in Indonesian Law: Should the Insolvency Test Mechanism be Applied?

The Problem of Filing for Bankruptcy in Indonesian Law: Should the Insolvency Test Mechanism be Applied?

On the Relationship Between Asset Exemptions and Outstanding Tax Repayments in Chapter 7 Bankruptcy

Under a Chapter 7 bankruptcy filing, assets are liquidated and used to repay debts, in order of a Court-established priority. If not repaid through the liquidation process, some of these debts (especially certain types of unpaid taxes) survive the bankruptcy proceedings and must still be repaid. The U.S. Bankruptcy Code allows individuals filing under Chapter 7 to exempt certain assets from the liquidation process. More generous exemptions lead to a lower value of assets liquidated and used to repay creditors. This leads to an interesting decision problem. Do filers with exempt assets and tax debts choose to retain their exempt assets and allow the tax obligations to survive the bankruptcy process? Or do they use the liquidation process to reduce outstanding tax obligations? This manuscript empirically explores this issue. We find no statistically significant evidence suggesting that households with greater exempt assets accumulate or repay a greater proportion of tax debts. However, filers who own businesses are more likely to accumulate and repay tax debts through bankruptcy.

The impact of fintech lending on credit access for U.S. small businesses

Small business lending (SBL) plays an important role in funding productive investment and fostering local economic growth. Recently, nonbank lenders have gained market share in the SBL market in the United States, especially relative to community banks. Among nonbanks, fintech lenders have become particularly active, leveraging alternative data and complex modeling for their own internal credit scoring. We use proprietary loan-level data from two fintech SBL platforms (Funding Circle and LendingClub) to explore the characteristics of loans originated pre-pandemic (20162019). Our results show that these fintech SBL platforms lent relatively more in zip codes with higher unemployment rates and higher business bankruptcy filings. Moreover, fintech platforms’ internal credit scores were able to predict future loan performance more accurately than traditional credit scores, particularly in areas with high unemployment. Using Y-14 M loan-level bank data, we compare fintech SBL with traditional bank business cards in terms of credit access and interest rates. Overall, while not all fintech firms follow the same approach, we find that fintech lenders could help close the credit gap, allowing small businesses that were less likely to receive credit through traditional lenders to access credit and potentially at lower cost.

Examining the financial landscape of cancer: An analysis of debt and bankruptcy among patients in Massachusetts (2010-2019).

11032 Background: Financial toxicity is commonly reported by patients following a cancer diagnosis. Prior patient surveys indicate that up to one-third of cancer patients incur medical debt, of which 55% carry balances exceeding $10,000. In addition to debt and bankruptcy, credit scores are an important indicator of socioeconomic well-being following cancer diagnosis, because they affect housing stability, transportation access, and may even be predictive of health. Limited studies quantify incurred debt, bankruptcy rates, or credit scores following a cancer diagnosis compared with patients without a cancer diagnosis. Methods: Individuals with a cancer diagnosis in Massachusetts from 2010 to 2019 were identified through the Massachusetts Cancer Registry, and patient-level records on debt, bankruptcy, and other measures of financial well-being were linked using data from a major United States credit bureau. Changes in medical debt, credit score and bankruptcy filings were evaluated over time and compared with a random sampling of individuals residing in Massachusetts over the same time period that did not have a cancer diagnosis and were matched based on demographic factors. Results: 99,175 individuals with cancer and 188,875 individuals without cancer were identified, and average annual total debt balances were $758 and $669, respectively, throughout the study period. The highest total debt balances were observed among individuals with thyroid cancer ($913). Average annual medical collection balances were $45 for individuals without cancer and $52 among those with cancer with the highest balances among those with liver cancer ($66). Across the study period, the average annual bankruptcy incidence rate per 100 persons was 7.15 for those without cancer and 6.22 among those with cancer, with the highest incidence rates among those with thyroid cancer (7.34). Although there was a gradual increase in credit score in the control population, survivors of bladder, liver, ovarian, colorectal and lung cancers experienced a decline in credit scores. Conclusions: High rates of financial toxicity among individuals with cancer suggest that widespread healthcare and consumer finance reforms have not yet fully alleviated medical debt and bankruptcy in Massachusetts. Further research is needed to understand drivers of financial burden over time among those with cancer.

Private Equity-Backed Steward Healthcare Files for Bankruptcy

No abstract available. Article truncated after 150 words. Arizona Attorney General Kris Mayes (1) has launched an investigation into what led to Dallas-based Steward Health Care filing for Chapter 11 bankruptcy protection on May 6. The health system also recently shared that it is $9 billion in debt and has plans to sell all 31 of its hospitals, four of which are in Arizona and have a proposed auction date of June 28, according to a May 10 news release from Ms. Mayes (1). Steward relied on backing from private equity investors to quickly acquire dozens of community hospitals, including facilities in Massachusetts, Texas, Florida, and Arizona. Steward has been the focus of a year-and-a-half-long CBS News investigation revealing how private equity investors have siphoned hundreds of millions of dollars from community hospitals with devastating public health consequences (2). Records reviewed by CBS News showed Steward hospitals around the country left a trail of unpaid bills, at times …

Debt on the Ground: The Scholarly Discourse of Bankruptcy and Financial Precarity

A rich literature uses law and social science methods to better understand household financial distress and overindebtedness both inside and outside of bankruptcy. This scholarship contributes to several ongoing scholarly conversations, such as those on income and wealth disparities across race and class, how people live in circumstances of financial precarity, why people turn to the legal system to solve their problems, and how to improve access to justice so people can get the help they need. We first review the current literature about who files bankruptcy, the contributors to people's need to file bankruptcy, what happens to them in bankruptcy court, and what happens after their bankruptcy cases conclude. We then outline a research agenda of low-hanging fruit that will contribute to broader sociological and sociolegal research agendas, including economic mobility, aging, gender studies, health studies, family studies, social psychology, and policy work.

Market behaviors around bankruptcy and frozen funds withdrawal: Trading stranded assets on FTX

How do cryptocurrency markets react when an exchange allows trading but freezes withdrawals? This study examines the impact of liquidity funding shocks on the market liquidity of cryptocurrency markets and traders’ behavior. We examine this issue using a natural experiment in major cryptocurrencies when the FTX exchange, while about to file for bankruptcy, prohibited most investors from withdrawing assets held by the exchange while allowing trading to continue. By using proprietary tick-by-tick data, we test price divergence between FTX and Binance and perform t-tests on the difference in magnitude of liquidity measures between the pre- and post-withdrawal halt periods. We find that a substantial amount of trading on FTX occurred during this stranded asset period, even though liquidity deteriorated as the bid-ask spread and implicit transaction costs increased sharply. We further find traders engaging in a revealing flight to safety by moving their investments in stablecoin Tether or even exiting the market. These findings not only shed light on the resilience of cryptocurrency markets in the face of liquidity crises but also offer insights into the mechanisms traders employ to navigate such tumultuous periods.

Shareholder-Creditor Conflict and the Resolution of Financial Distress

Abstract Constructing a comprehensive data set of financially distressed firms that restructured their debts from 2000–2014, we find that firms with financial institutions’ loan-equity simultaneous holdings are more likely to restructure out of court than to file for bankruptcy. The effect is stronger when loans are oversecured and when the expected bankruptcy costs are larger. We use mergers of financial institutions and instrumental variable estimations to address potential endogeneity concerns. Firms with simultaneous holdings experience higher stock returns. The evidence suggests that mitigating shareholder-creditor conflict results in cost-effective resolutions of financial distress. (JEL G20, G30, G33)

The Impact of Insolvency and Bankruptcy Code 2016: A Comprehensive Study

Insolvency and bankruptcy have emerged as significant concerns in the global economy, impacting firms, economies, and individuals alike. Economic volatility, high corporate debt levels, industry disruptions, and inadequate financial management contribute to the escalation of insolvency risks. The COVID-19 epidemic has made these difficulties worse., leading to a surge in bankruptcy filings worldwide. In response to the need for efficient resolution mechanisms, India introduced Insolvency and Bankruptcy Code, 2016 (IBC), introduced for streamlining insolvency proceedings and protecting stakeholders' interests. While the IBC has achieved notable successes in resolving cases, challenges still must be addressed, including declining recovery rates and prolonged resolution times.

HAK EKSKLUSIF BANK INDONESIA MENENCABUT IZIN USAHA, PEMBUBARAN BADAN HUKUM DAN LIKUIDASI BANK (PERSPEKTIF HUKUM PERBANKAN NASIONAL)

This research is intended to systematically describe and analyze the role of Bank Indonesia authorities as creditors and supervisors and supervisors of banks in maintaining the soundness of banks based on the national banking system, regulating the revocation of business permits, dissolution of business entities and liquidation of banks based on the national banking system and the relevance of granting exclusive rights. to Bank Indonesia to file bankruptcy against the bank based on the Bankruptcy Law and the Banking Law. This type of research is normative juridical, with a statutory and conceptual approach. Based on the research results, it shows: firstly, that Bank Indonesia's authority as a creditor is anticipating financial difficulties faced by a bank within a certain period of time by providing loans with a maximum repayment period of 90 days (3 months). Meanwhile, Bank Indonesia's authority as supervisor and supervisor is aimed at improving the performance of a bank which is determined on the basis of asset quality, management quality, liquidity, profitability and solvency as an effort to increase public confidence in banks. Second; One of the recommendations from Bank Indonesia for one of the banks which, based on Bank Indonesia's assessment, is difficult to save is to revoke the business license, disband the business entity and liquidate the bank. Third: Although based on Law Number 37 of 2004 concerning Bankruptcy and Suspension of Debt Payment Obligations, it is determined that a bank's bankruptcy statement can only be submitted by Bank Indonesia, but because operationally and institutionally banks have different characteristics from other business entities, the implementation bankruptcy of a bank becomes ineffective, especially if it is linked to the principle of Lex Specialis Derogat Lex Generalis

The Nature of Public Interest as the Basis for the Prosecutor's Authority to File for Bankruptcy

Objective: The prosecutor's office in making policies to represent the public interest is a form of realization of law enforcement and justice. Not all public interests can be represented by the Prosecutor's Office when filing for bankruptcy. The public interest that can be represented by the Prosecutor's Office as a basis for submitting a bankruptcy application is the interest of the majority. The aim is to formulate the nature of the public interest as the basis for the Prosecutor's authority to file for Bankruptcy. Methode:This research is a type of normative research. Result: The essence of the public interest as the basis for the Prosecutor's authority to file for bankruptcy is the Prosecutor's policy in making decisions that represent the interests of the majority, so that the Prosecutor can realize the hope of implementing law enforcement and achieving justice.

A new estimation of default probabilities based on non-performing loans

We model the one-year ahead probability of default of Spanish non-financial corporations. While most of the literature defines default based on bankruptcy filings, we define default as having non-performing loans during at least three months in a given year. This broader definition allows to predict firms’ financial distress at an earlier stage, before their financial conditions are too deteriorated. We also carry out two applications of our prediction models: we assess a program implemented by the Spanish government to provide direct aid to firms severely affected by the Covid-19 crisis and we construct credit rating transition matrices.