Many countries' insolvency systems focus on restructuring financial liabilities, and ignore operational liabilities such as leases and long-term supplier contracts. We model insolvency procedures with and without operational restructuring options. Such options avoid excessive liquidation of firms with significant non-financial obligations. Ex-ante, this option should increase debt capacity, especially in industries with inputs supplied under executory contract. We test this hypothesis around the introduction of a new law in Israel which facilitated the rejection of contracts, and by comparing capital structures for industries with high lease obligations between the U.S. and other countries. Empirical results confirm that operating restructuring is a key aspect of insolvency.

We provide a first look at the economics of ad hoc creditor coalitions in U.S. Chapter 11 bankruptcies. Ad hoc coalitions have exploded in popularity, with nearly 90% of major cases since 2016 containing at least one ad hoc group. Using novel post-petition creditor-level holdings and group membership data, we evaluate the determinants and consequences of creditor coalition formation across 162 major bankruptcy cases from 2016-2021. We find that group formation is driven by variables such as creditor type, creditor holdings dispersion, case size, market liquidity, and creditor familiarity. Bond prices increase significantly following the formation of ad hoc groups, suggesting that markets expect creditor coalitions to improve recovery outcomes. Finally, we exploit a major 2017 bankruptcy court ruling to show that reducing within-class creditor protections leads to additional ad hoc group formation yet less efficient overall outcomes. Collectively, our results suggest that creditor coalitions play an important role in facilitating debtors' orderly and timely exits from Chapter 11 bankruptcy.

We study how agglomeration forces influence post-merger restructuring. We hypothesize and find that geographic overlap of acquirer and target establishments creates the potential for (co)agglomeration benefits that will differ for horizontal and vertical mergers. In vertical mergers, the target establishments are more likely to be kept when the acquirer establishment is located in the same city, indicating that firms benefit from geographically proximate inputs for production. In horizontal mergers, local redundancy increases the likelihood of target establishment closure rather than being kept or sold, consistent with the hypothesis that the acquirer aims to contain local competition through closure rather than sale. Using proxies to capture three dimensions of (co)agglomeration: input sharing, knowledge spillover, and labor pooling, we find that both horizontal and vertical acquirers are more likely to keep target establishments in proximate cities when (co)agglomeration benefits are high. Retained target establishments benefiting the most from agglomeration externalities in horizontal mergers show a significant increase in productivity. In addition to explaining how acquirers restructure the firm post-acquisition, our findings show how agglomeration externalities are reinforced and expanded by establishment-level decisions made following mergers.