The efficiency of preventive restructuring procedures: Evidence from France

Abstract

AbstractThis article critically evaluates the effectiveness of the European Union's recent Directive on restructuring and insolvency law, specifically within the context of France, aimed at facilitating the restructuring of financially distressed firms within the Eurozone. Specifically, through the Kaplan–Meyer estimator and the log‐rank test, this research rigorously examines whether preventive restructurings surpass standard bankruptcy procedures in efficiency. The dataset under analysis is distinctly tailored, focusing on companies undergoing both types of restructuring procedures within the French jurisdiction. The study reveals that companies successfully undergoing a preventive restructuring procedure showcase higher survival rates, albeit coupled with weaker financial performances when compared to their counterparts undergoing the traditional bankruptcy process. This outcome challenges the prevalent assumption linking early‐stage restructuring with uniformly elevated survival rates and improved financial performance. A noteworthy concern stems from this observed trend, suggesting that the existence of discrete preventive restructuring procedures might inadvertently prolong the operational lifespan of financially inviable firms. This underscores the necessity for policymakers to meticulously craft preventive restructuring procedures, prioritizing debtor protection while proactively addressing the moral hazard predicament.