THE RELATIONSHIP BETWEEN FINANCIAL DISTRESS ANDTHE STOCKHOLDER-BONDHOLDER CONFLICT

Abstract
This study documents the extent of the different forms of restructuring undertaken by financially distressed firms before a Chapter 11 filing. The study focuses on the following question: Does financial distress cause agency problems?, which is based on the analysis of financial statement ratios. Further analysis shows that the success or failure of financial restructuring before bankruptcy is a function of the assets. Due to time limitations, and considering the complexity of the ZETAÒ model, this study is based in the Altman (1988) considerations.
















The relationship between financial distress and the stockholder-bondholder conflict

Introduction
Financing policy by firms requires managers to identify ways of funding new investment. The managers may exercise three main choices: use retained earnings, borrow through debt instruments, or issue new shares.
Thus, financing policy, capital structure and firm ownership are all strongly lin...