Corporate Bankruptcy as a Filtering Device: Chapter 11 Reorganizations and Out-of-Court Debt Restructurings
AbstractThis article uses a game theoretic model of Chapter 11 bankruptcy and out-of-court debt restructuring to evaluate the economic efficiency of U.S. bankruptcy procedures. The model assumes that there are two types of failing firms: economically inefficient firms that should liquidate and economically efficient firms that should be saved. From an efficiency standpoint, the goal of corporate bankruptcy procedures is to liquidate the former under Chapter 7 and save the latter by reorganization under Chapter 11-that is, to filter out inefficient firms. However, it is difficult to identify which failing firms are inefficient, so bankruptcy procedures may operate with error. The model shows that a pooling equilibrium may occur in which both efficient and inefficient failing firms reorganize under Chapter 11. Adding restructuring as a bankruptcy alternative appears to make things worse, since the transactions cost savings in restructuring compared to reorganization makes the inefficient equilibrium more likely to occur. Copyright 1994 by Oxford University Press.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoArticle provided by Oxford University Press in its journal Journal of Law, Economics and Organization.
Volume (Year): 10 (1994)
Issue (Month): 2 (October)
Contact details of provider:
Postal: Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK
Fax: 01865 267 985
Web page: http://jleo.oupjournals.org/
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Fisher, Timothy C G & Martel, Jocelyn, 1999.
"Should We Abolish Chapter 11? Evidence from Canada,"
The Journal of Legal Studies,
University of Chicago Press, vol. 28(1), pages 233-57, January.
- Timothy C. G. Fisher & Jocelyn Martel, 1996. "Should We Abolish Chapter 11 : Evidence from Canada," CIRANO Working Papers 96s-22, CIRANO.
- Xavier Gin� & Inessa Love, 2010.
"Do Reorganization Costs Matter for Efficiency? Evidence from a Bankruptcy Reform in Colombia,"
Journal of Law and Economics,
University of Chicago Press, vol. 53(4), pages 833 - 864.
- Gine, Xavier & Love, Inessa, 2006. "Do reorganization costs matter for efficiency ? Evidence from a bankruptcy reform in Colombia," Policy Research Working Paper Series 3970, The World Bank.
- Cheung, L. & Levy, A., 1998. "An Integrative Analysis of Business Bankruptcy in Australia," Economics Working Papers wp98-03, School of Economics, University of Wollongong, NSW, Australia.
- Bhattacharjee, A. & Higson, C. & Holly, S. & Kattuman, P., 2004. "Business Failure in UK and US Quoted Firms: Impact of Macroeconomic Instability and the Role of Legal Institutions," Cambridge Working Papers in Economics 0420, Faculty of Economics, University of Cambridge.
- Alexander Radygin & Revold Entov & Irina Mezheraups & Alina Gontmakher & Yuri Simachev & Natalia Shmeleva & Mikhail Kuzyk & Harry Swain, 2005. "The Institution of Bankruptcy: Development, Problems, Areas of Reforming," Published Papers 123, Gaidar Institute for Economic Policy, revised 2012.
- Claessens, Stijn & Djankov, Simeon & Klapper, Leora, 1999. "Resolution of corporate distress - evidence from East Asia's financial crisis," Policy Research Working Paper Series 2133, The World Bank.
- Acharya, Viral V & John, Kose & Sundaram, Rangarajan K, 2005.
"Cross-Country Variations in Capital Structures: The Role of Bankruptcy Codes,"
CEPR Discussion Papers
4916, C.E.P.R. Discussion Papers.
- Acharya, Viral V. & Sundaram, Rangarajan K. & John, Kose, 2011. "Cross-country variations in capital structures: The role of bankruptcy codes," Journal of Financial Intermediation, Elsevier, vol. 20(1), pages 25-54, January.
- Jocelyn Martel, 1996. "Solutions au stress financier : Un survol de la littérature," CIRANO Working Papers 96s-03, CIRANO.
- Lucian Arye Bebchuk, 1998. "Chapter 11," NBER Working Papers 6473, National Bureau of Economic Research, Inc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press) or (Christopher F. Baum).
If references are entirely missing, you can add them using this form.