Changes in Corporate Restructuring Processes in Japan, 1981-2007

We analyze a large database collected from newspaper articles that report on major episodes of corporate restructuring in Japan between 1981 and 2007. By linking this database with financial data on public firms, we identify changes in the likelihood that a distressed undergoes restructuring, as well as in some measures adopted during restructuring. We find that the waydistressed Japanese firms are restructured has changed during this period. The likelihood that a large distressed firm with high levels of debt undergoes restructuring has declined. Those firms that undergo restructuring continue to adopt more aggressive measures in terms of layoffs andcutbacks than other distressed firms, suggesting that “restructuring”, when it happens, involves real adjustments. Banks continue to be important for firms with a clearly identified main bank, and the main bank is more likely to push for more drastic reductions in debt and bank loans than other entities leading a restructuring event.