Corporate Debt Restructuring (CDR) and its Impact on Firms’ Stock Market Performance:A Study of Pre- and Post-CDR Share-price Movements

The Corporate Debt Restructuring (CDR) mechanism aims to restructure debt of viable companies facing distress due to internal or external factors. The restructuring process is expected to involve sacrifice by all stakeholders, particularly equity holders and lenders. Equity holders sense a good bargain when their perceived sacrifice is much lesser than the costs that the lenders are expected to bear. Thus, excess abnormal returns around the event date would indicate that equity holders have obtained a better deal in the negotiation at the expense of lenders. This study provides evidence that equity holders get excess positive returns postannouncement of admission of a firm to CDR. The market thus perceives admission to CDR as an indicator of better return on equity capital.