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Jens Forssbaeck

Associate professor, Programme director – Master of Finance

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Stayin' alive: Debt complexity as a bankruptcy-delaying mechanism

Author

  • Jens Forssbaeck
  • Håkan Jankensgård
  • Reda Moursli

Summary, in English

A complex and multi-layered liability structure with potentially overlapping claims on underlying collateral reduces expected recovery rates for creditors, which increases their incentives to keep otherwise insolvent firms afloat. Financially distressed firms may therefore seek to strategically “toxify” their capital structure to stave off future bankruptcy. In this article, we find evidence indicating that firms generate more debt complexity as they enter financial distress. Consistent with the idea that it operates as a bankruptcy-delaying mechanism, complexity reduces the probability of bankruptcy for any given level of financial distress.

Department/s

  • Accounting and Corporate Finance
  • Department of Economics

Publishing year

2025

Language

English

Publication/Series

Journal of Corporate Finance

Volume

93

Document type

Journal article

Publisher

Elsevier

Topic

  • Economics
  • Business Administration

Keywords

  • Debt complexity
  • Financial distress
  • Liquidation
  • Bankruptcy
  • G32
  • G33

Status

Published

ISBN/ISSN/Other

  • ISSN: 1872-6313