Publications
Publications
- 2021
Crisis Interventions in Corporate Insolvency
By: Samuel Antill and Christopher Clayton
Abstract
We model the optimal resolution of insolvent firms in general equilibrium. Collateral constrained
banks lend to (i) solvent firms to finance investments and (ii) distressed firms to
avoid liquidation. Liquidations create negative fire-sale externalities. Liquidations also relieve
bank balance-sheet congestion, enabling new firm loans that generate positive collateral
externalities by lowering bank borrowing rates. Socially optimal interventions encourage liquidation
when firms have high operating losses, high leverage, or low productivity. Surprisingly,
larger fire sales promote interventions encouraging more liquidations. We study synergies between
insolvency interventions and macroprudential regulation, bailouts, deferred loss recognition,
and debt subordination. Our model elucidates historical crisis interventions.
Keywords
Insolvent Firms; Government Intervention; Liquidation; Econometric Models; Insolvency and Bankruptcy; Governance; Policy
Citation
Antill, Samuel, and Christopher Clayton. "Crisis Interventions in Corporate Insolvency." Working Paper, February 2021. (Accept with Revisions, Journal of Finance.)