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Does court-supervised reorganization work? Evidence from post-confirmation firm failure

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  • Leyman, Bart
  • Schoors, Koen J.L.
  • Coussement, Peter

Abstract

Unlike the US Chapter 11, the Belgian reorganization legislation requires that distressed firms remain temporarily under court-supervision during the post-confirmation stage. Using a hand-collected sample of firms, we analyze the likelihood of business failure and the time to failure during this period. Less viable firms are more likely to fail and do faster so, indicating relatively effective reorganization proceedings. Firms that are indebted to highly secured banks or owe high sums of unpaid taxes are more likely to fail. Judicial discretion affects the likelihood of failure only in a subsample of sole proprietorships.

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Bibliographic Info

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

Volume (Year): 31 (2011)
Issue (Month): 3 (September)
Pages: 149-168

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Handle: RePEc:eee:irlaec:v:31:y:2011:i:3:p:149-168

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Web page: http://www.elsevier.com/locate/irle

Related research

Keywords: Court-supervised reorganization Bankruptcy Financial distress Judicial discretion Debt structure;

References

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  1. Stefan Sundgren, 1998. "Does a Reorganization Law Improve the Efficiency of the Insolvency Law? The Finnish Experience," European Journal of Law and Economics, Springer, vol. 6(2), pages 177-198, September.
  2. White, Michelle J, 1994. "Corporate Bankruptcy as a Filtering Device: Chapter 11 Reorganizations and Out-of-Court Debt Restructurings," Journal of Law, Economics and Organization, Oxford University Press, vol. 10(2), pages 268-95, October.
  3. Franks, Julian R & Torous, Walter N, 1989. " An Empirical Investigation of U.S. Firms in Reorganization," Journal of Finance, American Finance Association, vol. 44(3), pages 747-69, July.
  4. Nicola Gennaioli & Stefano Rossi, 2010. "Judicial Discretion in Corporate Bankruptcy," Review of Financial Studies, Society for Financial Studies, vol. 23(11), pages 4078-4114, November.
  5. Bergstrom, Clas & Eisenberg, Theodore & Sundgren, Stefan, 2002. "Secured debt and the likelihood of reorganization," International Review of Law and Economics, Elsevier, vol. 21(4), pages 359-372, May.
  6. White, Michelle J, 1989. "The Corporate Bankruptcy Decision," Journal of Economic Perspectives, American Economic Association, vol. 3(2), pages 129-51, Spring.
  7. Dewaelheyns, Nico & Van Hulle, Cynthia, 2009. "Filtering speed in a Continental European reorganization procedure," International Review of Law and Economics, Elsevier, vol. 29(4), pages 375-387, December.
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  11. Arturo Bris & Ivo Welch & Ning Zhu, 2006. "The Costs of Bankruptcy: Chapter 7 Liquidation versus Chapter 11 Reorganization," Journal of Finance, American Finance Association, vol. 61(3), pages 1253-1303, 06.
  12. Timothy C. G. Fisher & Jocelyn Martel, 1996. "Should We Abolish Chapter 11 : Evidence from Canada," CIRANO Working Papers 96s-22, CIRANO.
  13. Baird, Douglas G & Morrison, Edward R, 2001. "Bankruptcy Decision Making," Journal of Law, Economics and Organization, Oxford University Press, vol. 17(2), pages 356-72, October.
  14. Nico Dewaelheyns & Cynthia Van Hulle, 2006. "Corporate Failure Prediction Modeling: Distorted by Business Groups' Internal Capital Markets?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(5-6), pages 909-931.
  15. Eisenberg, Theodore & Tagashira, Shoichi, 1994. "Should We Abolish Chapter 11? The Evidence from Japan," The Journal of Legal Studies, University of Chicago Press, vol. 23(1), pages 111-57, January.
  16. Timothy C. G. Fisher & Jocelyn Martel, 1994. "Will the Bankruptcy Reform Work? An Empirical Analysis of Financial Reorganization in Canada," Canadian Public Policy, University of Toronto Press, vol. 20(3), pages 265-277, September.
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Cited by:
  1. Sofie Balcaen & Sophie Manigart & Jozefien Buyze & Hubert Ooghe, 2012. "Firm exit after distress: differentiating between bankruptcy, voluntary liquidation and M&A," Small Business Economics, Springer, vol. 39(4), pages 949-975, November.

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