Publications
Publications
- April 2025
- Journal of Finance
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; Policy
Citation
Antill, Samuel, and Christopher Clayton. "Crisis Interventions in Corporate Insolvency." Journal of Finance 80, no. 2 (April 2025): 875–910.