Behavioral Finance and Asset Valuation in Insolvency Proceedings

In this article, we confront the results of the expert valuation of assets, followed by the realities of the prices achieved in the realization of assets in insolvency proceedings in the Czech Republic. Based on our findings we come to the conclusion that the expert's estimate of the value, respectively the usual price defined by the Czech law, the average discrepancy from the actual prices could be achieved by more than 30 percent in both directions under the circumstances that the estate was converted into cash within bankruptcy under a single contract. This difference is considered to be essential and we follow to provide possible explanation of the causes, which include poor choice of basis of value in relation to the actual purpose of valuation, qualitative change in the assets in the period from the moment of valuation until realization, information asymmetry and opportunity costs on the part of the insolvency administrator, behavior and the nature of investors operating in the field of insolvency, quality of expert appraisal and "negative goodwill" of insolvency.