This paper examines empirically the effect of concentrated ownership on resolving financial distress of public firms with large, publicly traded, corporate bond debt. Using a large sample of distressed firms in Israel over the course of a decade, I show that stronger financial ties of controlling owners to the firm, manifest in higher cash flow rights and the presence of previously extended related-party debt, are associated with a higher probability of resolving distress in an out-of-court reorganization without experiencing ownership turnover. I argue that these ownership characteristics are indicative of increased motivation of insiders to reorganize the firm and retain control, but in addition, they serve the controlling shareholders financially to ensure their continued holding of the company.

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