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The Comparative Efficiency of Small-Firm Bankruptcies: A Study of the US and Finnish Bankruptcy Codes

Author

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  • S. Abraham Ravid
  • S. Sundgren

Abstract

We use a sample of small firms to compare efficiency aspects of the creditor oriented old (pre-1993) Finnish bankruptcy code and the debtor oriented US code. We find that although the same economic factors affect liquidations in both the US and Finland, under the Finnish code firms are somewhat more likely to be liquidated piecemeal. We also find that the costs of going concern sales and of liquidations under the Finnish code tend to go toward the higher end of the range found in US studies; and that payments to creditors in the US reorganizations are higher than the payoffs under the Finnish bankruptcy regime.

Suggested Citation

  • S. Abraham Ravid & S. Sundgren, 1998. "The Comparative Efficiency of Small-Firm Bankruptcies: A Study of the US and Finnish Bankruptcy Codes," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-054, New York University, Leonard N. Stern School of Business-.
    • Handle: RePEc:fth:nystfi:98-054
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    Cited by:

    1. Korkeamaki, Timo & Koskinen, Yrjo & Takalo, Tuomas, 2007. "Phoenix rising: Legal reforms and changes in valuations in Finland during the economic crisis," Journal of Financial Stability, Elsevier, vol. 3(1), pages 33-58, April.
    2. Zhu, Xiaoquan & Peng, Hongfeng & Zhang, Zijian, 2020. "The nexus of judicial efficiency, social burden and default risk: Cross-country evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 68(C).
    3. Couwenberg, O. & de Jong, A., 2007. "Costs and Recovery Rates in the Dutch Liquidation-Based Bankruptcy System," ERIM Report Series Research in Management ERS-2007-041-F&A, 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 University Rotterdam.
    4. Marianna Succurro, 2012. "Bankruptcy systems and economic performance across countries: some empirical evidence," European Journal of Law and Economics, Springer, vol. 33(1), pages 101-126, February.
    5. Erkki Laitinen, 2011. "Assessing viability of Finnish reorganization and bankruptcy firms," European Journal of Law and Economics, Springer, vol. 31(2), pages 167-198, April.
    6. repec:zbw:bofrdp:2007_001 is not listed on IDEAS
    7. Thorburn, Karin S., 2000. "Bankruptcy auctions: costs, debt recovery, and firm survival," Journal of Financial Economics, Elsevier, vol. 58(3), pages 337-368, December.
    8. Naohisa Goto & Konari Uchida, 2012. "How do banks resolve firms’ financial distress? Evidence from Japan," Review of Quantitative Finance and Accounting, Springer, vol. 38(4), pages 455-478, May.
    9. Arturo Bris & Ivo Welch & Ning Zhu, 2005. "The Costs of Bankruptcy," Yale School of Management Working Papers amz2375, Yale School of Management, revised 21 Sep 2009.
    10. Annabi, Amira & Breton, Michèle & François, Pascal, 2012. "Game theoretic analysis of negotiations under bankruptcy," European Journal of Operational Research, Elsevier, vol. 221(3), pages 603-613.
    11. Marianna Succurro, 2008. "Bankruptcy Systems And Economic Performance Across Contries: Some Empirical Evidence," Working Papers 200801, Università della Calabria, Dipartimento di Economia, Statistica e Finanza "Giovanni Anania" - DESF.
    12. 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.
    13. Couwenberg, Oscar & de Jong, Abe, 2006. "It takes two to tango: An empirical tale of distressed firms and assisting banks," International Review of Law and Economics, Elsevier, vol. 26(4), pages 429-454, December.
    14. Ileana Ashrafzadeh - Nișulescu & Marușa Beca, 2013. "The Corporate Insolvency’s Evolution in the EU and India in the Period 2007-2012 Classification-JEL:," Journal of Knowledge Management, Economics and Information Technology, ScientificPapers.org, vol. 3(6), pages 1-15, December.
    15. Nico Dewaelheyns & Cynthia Hulle, 2008. "Legal reform and aggregate small and micro business bankruptcy rates: evidence from the 1997 Belgian bankruptcy code," Small Business Economics, Springer, vol. 31(4), pages 409-424, December.
    16. Ari Hyytinen & Iikka Kuosa & Tuomas Takalo, 2003. "Law or Finance: Evidence from Finland," European Journal of Law and Economics, Springer, vol. 16(1), pages 59-89, July.
    17. Franks, Julian & Sussman, Oren, 2003. "Financial Distress and Bank Restructuring of Small to Medium Size UK Companies," CEPR Discussion Papers 3915, C.E.P.R. Discussion Papers.
    18. 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.
    19. Oscar Couwenberg, 2001. "Survival Rates in Bankruptcy Systems: Overlooking the Evidence," European Journal of Law and Economics, Springer, vol. 12(3), pages 253-273, November.
    20. S. Alex Yang & John R. Birge & Rodney P. Parker, 2015. "The Supply Chain Effects of Bankruptcy," Management Science, INFORMS, vol. 61(10), pages 2320-2338, October.
    21. Korkeamaki, Timo & Koskinen, Yrjo & Takalo, Tuomas, 2007. "Phoenix rising: Legal reforms and changes in valuations in Finland during the economic crisis," Journal of Financial Stability, Elsevier, vol. 3(1), pages 33-58, April.

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