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  • March 1997
  • Article
  • Journal of Finance

Transactions Costs and Capital Structure Choice: Evidence from Financially Distressed Firms

By: S. C. Gilson
  • Format:Print
  • | Pages:36
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Abstract

This study provides evidence that transactions costs discourage debt reductions by financially distressed firms when they restructure their debt out of court. As a result, these firms remain highly leveraged and one-in-three subsequently experience financial distress. Transactions costs are significantly smaller, hence leverage falls by more and there is less recurrence of financial distress, when firms recontract in Chapter 11. Chapter 11 therefore gives financially distressed firms more flexibility to choose optimal capital structures.

Keywords

Cost; Capital Structure; Decision Choices and Conditions; Information; Finance; Business Ventures

Citation

Gilson, S. C. "Transactions Costs and Capital Structure Choice: Evidence from Financially Distressed Firms." Journal of Finance 52, no. 1 (March 1997): 161–196. (Abstracted in Contemporary Finance Digest 1 (autumn 1997))
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About The Author

Stuart C. Gilson

Finance
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