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The Costs of Bankruptcy: Chapter 7 Liquidation versus Chapter 11 Reorganization

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Author Info
ARTURO BRIS
IVO WELCH
NING ZHU

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Abstract

Our paper explores a comprehensive sample of small and large corporate bankruptcies in Arizona and New York from 1995 to 2001. Bankruptcy costs are very heterogeneous and sensitive to the measurement method used. We find that Chapter 7 liquidations appear to be no faster or cheaper (in terms of direct expense) than Chapter 11 reorganizations. However, Chapter 11 seems to preserve assets better, thereby allowing creditors to recover relatively more. Our paper also provides a large number of further empirical regularities. Copyright 2006 by The American Finance Association.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1540-6261.2006.00872.x
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Publisher Info
Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 61 (2006)
Issue (Month): 3 (06)
Pages: 1253-1303
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Handle: RePEc:bla:jfinan:v:61:y:2006:i:3:p:1253-1303

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  1. Aikman, David & Alessandri, Piergiorgio & Eklund, Bruno & Gai, Prasanna & Kapadia, Sujit & Martin, Elizabeth & Mora, Nada & Sterne, Gabriel & Willison, Matthew, 2009. "Funding liquidity risk in a quantitative model of systemic stability," Bank of England working papers 372, Bank of England. [Downloadable!]
  2. Couwenberg, O. & Jong, A. de, 2007. "Costs and Recovery Rates in the Dutch Liquidation-Based Bankruptcy System," Research Paper ERS-2007-041-F&A Revision, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni. [Downloadable!]
  3. Taillard, Jerome Ph. A., 2008. "Thriving in the Midst of Financial Distress? An Analysis of Firms Exposed to Abestos Litigation," Working Paper Series 2008-12, Ohio State University, Charles A. Dice Center for Research in Financial Economics. [Downloadable!]
  4. Oscar Couwenberg & Abe Jong, 2008. "Costs and recovery rates in the Dutch liquidation-based bankruptcy system," European Journal of Law and Economics, Springer, vol. 26(2), pages 105-127, October. [Downloadable!] (restricted)
  5. Acharya, Viral V. & Davydenko, Sergei A. & Strebulaev, Ilya, 2009. "Cash Holdings and Credit Risk," CEPR Discussion Papers 7125, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  6. Holger Kraft & Mogens Steffensen, 2006. "Bankruptcy, Counterparty Risk, and Contagion," FRU Working Papers 2006/03, University of Copenhagen. Department of Economics. Finance Research Unit. [Downloadable!]
  7. Xin Guo & Robert Jarrow & Haizhi Lin, 2008. "Distressed debt prices and recovery rate estimation," Review of Derivatives Research, Springer, vol. 11(3), pages 171-204, October. [Downloadable!] (restricted)
  8. Pascal François, 2006. "Tax loss carry-forwards and optimal leverage," Applied Financial Economics, Taylor and Francis Journals, vol. 16(14), pages 1075-1083, October. [Downloadable!] (restricted)
  9. Marianna Succurro, 2008. "Bankruptcy Systems And Economic Performance Across Contries: Some Empirical Evidence," Working Papers 200801, Università della Calabria, Dipartimento di Economia e Statistica. [Downloadable!]
  10. B. Leyman & K. Schoors & P. Coussement, 2008. "The Role of Firm Viability, Creditor Behavior and Judicial Discretion in the Failure of Distressed Firms under Courtsupervised Restructuring: Evidence from Belgium," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 08/509, Ghent University, Faculty of Economics and Business Administration. [Downloadable!]
  11. Jarko Fidrmuc & Christa Hainz & Anton Malesich, 2006. "Default Rates in the Loan Market for SMEs: Evidence from Slovakia," William Davidson Institute Working Papers Series wp854, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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  12. Piergiorgio Alessandri & Prasanna Gai & Sujit Kapadia & Nada Mora & Claus Puhr, 2009. "Towards a Framework for Quantifying Systemic Stability," International Journal of Central Banking, International Journal of Central Banking, vol. 5(3), pages 47-81, September. [Downloadable!]
  13. John Armour & Audrey Hsu & Adrian Walters, 2006. "The costs and benefits of secured creditor control in bankruptcy: Evidence from the UK," ESRC Centre for Business Research - Working Papers wp332, ESRC Centre for Business Research. [Downloadable!]
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