restructuring of 2008–2009 to study changes in domestic bank lending behavior. After external debt restructuring, private … dispersion in beliefs across domestic banks, which leads to a misallocation of credit. External debt restructuring eliminates … with the substantial growth in domestic credit upon debt restructuring but also with its independence from the haircut size …

findings under two assumptions, both of which are satisfied in the data: increasing short-run restructuring risk in the run …-up to a restructuring, and high exit yields. We relate our findings to the policy debate on restructuring procedures. …