Judicial Discretion in Corporate Bankruptcy
AbstractWe study a demand and supply model of judicial discretion in corporate bankruptcy. On the supply side, we assume that bankruptcy courts may be biased for debtors or creditors, and subject to career concerns. On the demand side, we assume that debtors (and creditors) can engage in forum shopping at some cost. A key finding is that stronger creditor protection in reorganization improves judicial incentives to resolve financial distress efficiently, preventing a "race to the bottom" towards inefficient uses of judicial discretion. The comparative statics of our model shed light on a wealth of evidence on U.S. bankruptcy and yield novel predictions on how bankruptcy codes should affect firm-level outcomes.
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Bibliographic InfoPaper provided by Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University in its series CEI Working Paper Series with number 2008-5.
Length: 40 p.
Date of creation: Apr 2008
Date of revision:
Note: This version: December 2007
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More information through EDIRC
Judicial Discretion; Corporate Bankruptcy;
Other versions of this item:
- G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
- K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-05-10 (All new papers)
- NEP-CFN-2008-05-10 (Corporate Finance)
- NEP-LAW-2008-05-10 (Law & Economics)
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