Wei Wang’s research while affiliated with Queen's University and other places

Academics and practitioners are increasingly concerned about global zombieism, a term used to describe insolvent firms that survive with the support of financial institutions, investors, or governments, particularly during unusual market conditions. Using dual-filters of interest coverage ratio and an empirically validated default prediction model, we propose a new measure to gauge the extent of zombieism in the world’s 20 largest economies. The average zombie share of listed firms has increased significantly since 1990, to about 7% in 2020. Zombie firms are typically found among small and medium-sized enterprises. Economic growth, industry compositions, and lenient monetary policies have strong explanatory power for global zombieism. We show that the presence of zombie firms generates significant market congestion, limiting the growth of healthy firms. We also find that the development of global corporate bond markets contributes to zombie firm growth. Leveraging staggered bankruptcy reforms as an exogenous variation, we find that these reforms lower zombie ratio by 1.4% points. The reduction is more substantial if the bankruptcy law becomes more creditor-friendly. Having failed to recover, zombie firms can survive for an average of 5 years before declaring bankruptcy, being delisted, or being acquired. Bankruptcy reforms accelerate the dissolution of zombie status.

Several recent trends have reshaped the nature of bargaining in Chapter 11. These include increasingly complex prebankruptcy capital structures, decreasing time in Chapter 11 due to prepacks and prenegotiated plans, growing use of restructuring support agreements (RSAs) and sales of substantially all assets, an increased number of defaulting private equity–owned firms, and an increase in activity of specialized distressed debt investors. These trends have changed the balance of power in favor of senior secured lenders, who further shape the course of out-of-court negotiations. We examine evidence of the impact of these changes on important stakeholders, including creditors and workers.

In this article, we review the literature on the recent growth of corporate debt in China and present stylized facts on the evolution of debt composition, nonperforming loans, defaults, and bankruptcy filings. We then describe the legal and political institutions that characterize the system for restructuring and liquidating financially distressed firms, including recent reforms of China's bankruptcy law. Finally, we discuss the main challenges faced by China in the implementation of these reforms, including frictions in judicial enforcement. We also propose potential avenues for future research.

Enterprise valuation plays a central role in negotiations over how and when to restructure a distressed firm. This chapter provides some explanations as to why such large differences in valuation arise. It reviews the models commonly used to value distressed firms, based on accepted practices. The two most widely used approaches to valuation are “relative valuation” models, where value is derived from the pricing of comparable assets, and discounted cash flow (DCF) models. The “comparable company” approach, sometimes also referred to as a “trading multiples” valuation, estimates the value of the target firm by applying valuation multiples of peer firms to the target. The first key input to the DCF model is the projection of free cash flows. Parties to a valuation dispute will sometimes refer to observed trading prices of claims to support their position on value.

This chapter examines the detailed aspects of investing in distressed and defaulted debt securities of firms, which are either close to or already in bankruptcy, and in some cases, the equity of the firms that succeed in emerging from the bankruptcy‐reorganization process. The profit‐making potential of securities selling at discount prices makes distressed securities very attractive to the educated and aggressive investor. The main focus of academic and professional investment research in the risky corporate credit market has typically been on the performance of high‐yield bonds, including, importantly, the default and recovery rates of those bonds that default. The chapter shows the time series trend in the market‐to‐face value ratios of defaulted bonds and bank loans. Market‐to‐face value ratios are potentially an important indication of trading opportunities, especially if one believes in “regression to the mean.” In general, returns appear to be quite impressive for investing in a broad, diversified portfolio of defaulted bonds.