We study the restructuring process of small and medium-sized firms in financial distress. We have a unique dataset with firms in the Netherlands that are assisted in their restructuring effort by banks. Part of our dataset consists of firms that successfully restructure their operations and obligations with the help of their bank. Another part consists of firms that, despite the assistance of their bank, did not succeed in reorganizing their operations and finances. Our empirical test predicts success and failure in restructuring. We find that banks play a role in the firms' restructuring efforts and that this assistance is of crucial importance to the success of the restructuring. We conclude that the harsh bankruptcy rules in the Netherlands support private negotiations between financially distressed firms and their banks.

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Keywords Bankruptcy, Debt restructuring, Financial distress, Reorganization
Persistent URL dx.doi.org/10.1016/j.irle.2007.01.001, hdl.handle.net/1765/68484
Journal International Review of Law and Economics
Couwenberg, O, & de Jong, A. (2006). It takes two to tango: An empirical tale of distressed firms and assisting banks. International Review of Law and Economics, 26(4), 429–454. doi:10.1016/j.irle.2007.01.001