Political connections and debt restructurings |
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| Institution: | 1. University of Nevada, Reno, Reno, NV 89557, United States of America;2. School of Finance, Dongbei University of Finance and Economics, Dalian, China;1. University of Nevada, Reno, Reno, NV 89557, United States of America;2. School of Finance, Dongbei University of Finance and Economics, Dalian, China;1. Kozminski University, Department of Banking and Insurance, Ul. Jagiellońska 57/59, 03-301 Warsaw, Poland;2. BG? SA, Ul. Kasprzaka 10/16, 01-211 Warsaw, Poland;3. Kozminski University, Department of Finance, Ul. Jagiellońska 57/59, 03-301 Warsaw, Poland;1. Independent Researcher;2. University of Southern Denmark, Danish Finance Institute, Campusvej 55, 5230 Odense M, Denmark |
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| Abstract: | This paper presents evidence that distressed firms with politically connected executives and board members are more likely to reorganize outside of court than to file for Chapter 11 bankruptcy. This relation is more evident for firms that have more political importance, such as major employers within a state, firms located in swing states, and in periods leading up to major election dates. The evidence suggests that the expected costs of financial distress are lower for politically connected firms which may partially explain the higher leverage ratios of politically connected firms documented in the extant literature. |
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