Allowing a firm in a mild financial distress to restructure, instead of forcing it to liquidate,

Question

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Allowing a firm to restructure instead of liquidation signals the lender's willingness to maintain a long-term relationship with the borrower and improve its reputation in the credit market. It also may make the lender better off in the long run by avoiding the costs of liquidation and potentially recovering more funds through a successful restructuring process. However, it may diminish the borrower's economic value in the short term due to the costs of restructuring.

Allowing a Firm in a Mild Financial Distress to Restructure