Corporate Defaults, Workouts, and the Rise of the Distressed Asset Investment Industry

Abstract

We examine the formation and growth of the distressed asset investment industry during the late twentieth century, with specific focus on the strategies of the leading firms. The distressed asset investment industry is dominated by firms based in the United States and is relatively concentrated, due in large part to early movers developing distinctive investment capabilities through participation in landmark transactions, relationship-specific resources, and exploitation of scale effects. We argue that the participation of these firms in the bankruptcy and corporate restructuring markets has resulted in private-sector workouts becoming more competitive and more efficient over the last thirty years, especially in the United States.