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Benefits and costs of coporate debt restructuring : an estimation for Korea / prepared by Jae Chung and Lev Ratnovski.

By: Contributor(s): Material type: TextTextSeries: IMF working paper ; WP/16/204.Publisher: [Washington, D.C.] : International Monetary Fund, [2016]Copyright date: ©2016Description: 1 online resource (22 pages) : color illustrationsContent type:
  • text
Media type:
  • computer
Carrier type:
  • online resource
ISBN:
  • 9781475545418
  • 147554541X
  • 147554555X
  • 9781475545555
ISSN:
  • 1018-5941
Subject(s): Genre/Form: Additional physical formats: Print version:: Benefits and Costs of Corporate Debt Restructuring: An Estimation for Korea.DDC classification:
  • 658.1526 23
LOC classification:
  • HG3881.5.I58 W67 No. 16/204eb
Online resources: Abstract: The paper offers a method to quantify benefits and costs of corporate debt restructuring, with an application to Korea. We suggest a "persistent ICR<1" criterion to capture firms that had ICR<1 for multiple consecutive years and thus will likely require restructuring. We assess the benefits of debt restructuring by estimating the effects of removing a firm's debt overhang on its investment and hiring decisions. We refine the assumptions on the cost of debt restructuring based on the literature, and focus not only on creditor losses, but also on the employment impact of corporate restructuring. Benchmark results for Korea suggest 5.5-7.5 percent of GDP creditor losses and a 0.4-0.9 percent of the labor force employment impact from the debt restructuring. These are compensated by a permanent 0.4-0.9 percentage points increase in future GDP growth thanks to higher corporate investment and 0.05-0.1 percent of labor force higher hiring in the subsequent years. The key qualitative result is that corporate debt restructurings "pay off" in the medium term: their economic cost is recouped over about 10 years.
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eBook eBook e-Library EBSCO Business Available
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"October 2016."

At head of title: International Monetary Fund, Asia and Pacific Department.

Includes bibliographical references (pages 20-21).

The paper offers a method to quantify benefits and costs of corporate debt restructuring, with an application to Korea. We suggest a "persistent ICR<1" criterion to capture firms that had ICR<1 for multiple consecutive years and thus will likely require restructuring. We assess the benefits of debt restructuring by estimating the effects of removing a firm's debt overhang on its investment and hiring decisions. We refine the assumptions on the cost of debt restructuring based on the literature, and focus not only on creditor losses, but also on the employment impact of corporate restructuring. Benchmark results for Korea suggest 5.5-7.5 percent of GDP creditor losses and a 0.4-0.9 percent of the labor force employment impact from the debt restructuring. These are compensated by a permanent 0.4-0.9 percentage points increase in future GDP growth thanks to higher corporate investment and 0.05-0.1 percent of labor force higher hiring in the subsequent years. The key qualitative result is that corporate debt restructurings "pay off" in the medium term: their economic cost is recouped over about 10 years.

Description based on online resource; title from pdf title page (IMF.org Web site, viewed November 16, 2016).

Added to collection customer.56279.3

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