Essays in Finance and Macroeconomics on the Effects and Resolution of Financial Distress

Abstract

This dissertation examines the macroeconomic and microeconomic effects of institutions for financial distress resolution. The first chapter assesses the macroeconomic cost of corporate debt crises and the moderating power of well-designed corporate bankruptcy institutions. The second chapter highlights a novel trade-off for the design of creditor rights. The third and final chapter analyzes the dynamic effects of central bank liquidity injections during financial crises. Across all three chapters, this dissertation documents sizable macroeconomic and microeconomic costs of inefficient distress resolution. Economic shocks risk to be amplified by the incompleteness of financial contracts. But well-designed public institutions of bankruptcy (Chapter 1), securities law (Chapter 2) and emergency lending facilities (Chapter 3) complement private contracts and can remedy consequences of incompleteness ex post. These policies also change economic decisions ex ante, and I provide evidence on how this can create a trade-off for policy makers.