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What discount rate should bankruptcy judges use? Estimates from Canadian reorganization data

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Author Info
Barthlmy, Fabrice
Fisher, Timothy C.G.
Martel, Jocelyn

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Abstract

Using data from financial reorganization plans filed by insolvent Canadian firms, we estimate the discount rate implicit in the unsecured creditors' reorganization decision. Using (HARA) utility functions, we find the implicit monthly discount rate of creditors to be 4.9%, which corresponds to an annual discount rate of 77%. This is 7-10 times higher than discount rates used in previous empirical studies of reorganization. The discount rate estimates are robust to a range of assumptions about the degree of risk aversion and the market-to-book-value ratio of assets.

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Publisher Info
Article provided by Elsevier in its journal International Review of Law and Economics.

Volume (Year): 29 (2009)
Issue (Month): 1 (March)
Pages: 67-72
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Handle: RePEc:eee:irlaec:v:29:y:2009:i:1:p:67-72

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Keywords: Bankruptcy Reorganization Discount rate;

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Dreyfus, Mark K & Viscusi, W Kip, 1995. "Rates of Time Preference and Consumer Valuations of Automobile Safety and Fuel Efficiency," Journal of Law & Economics, University of Chicago Press, vol. 38(1), pages 79-105, April.
  2. Jerry A. Hausman, 1979. "Individual Discount Rates and the Purchase and Utilization of Energy-Using Durables," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 33-54, Spring. [Downloadable!] (restricted)
  3. Moore, Michael J & Viscusi, W Kip, 1990. " Models for Estimating Discount Rates for Long-term Health Risks Using Labor Market Data," Journal of Risk and Uncertainty, Springer, vol. 3(4), pages 381-401, December.
  4. Timothy C. G. Fisher & Jocelyn Martel, 1996. "Should We Abolish Chapter 11 : Evidence from Canada," CIRANO Working Papers 96s-22, CIRANO. [Downloadable!]
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  5. John T. Warner & Saul Pleeter, 2001. "The Personal Discount Rate: Evidence from Military Downsizing Programs," American Economic Review, American Economic Association, vol. 91(1), pages 33-53, March. [Downloadable!] (restricted)
  6. Eisenberg, Theodore & Tagashira, Shoichi, 1994. "Should We Abolish Chapter 11? The Evidence from Japan," Journal of Legal Studies, University of Chicago Press, vol. 23(1), pages 111-57, January.
  7. Dermot Gately, 1980. "Individual Discount Rates and the Purchase and Utilization of Energy-Using Durables: Comment," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 373-374, Spring. [Downloadable!] (restricted)
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This page was last updated on 2009-12-3.

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