Advanced Search
MyIDEAS: Login to save this paper or follow this series

Building Legal Indexes to explain Recovery Rates: An Analysis of the French and UK Bankruptcy Codes

Contents:

Author Info

  • Régis Blazy

    ()
    (LaRGE Research Center, Université de Strasbourg)

  • Nirjhar Nigam

    (Luxembourg School of Finance)

Abstract

The main aim of this paper is to find the legal characteristics that impact on the recovery rates. Previous studies (LLSV, Doing Business Report, World Bank) have usefully used a set of legal indexes to rank the bankruptcy law prevalent within the country. But they fail to identify the characteristics of bankruptcy procedures that create more recoveries. We give here elements of answer by taking into consideration two countries that are good representatives of the two main legal systems prevailing in Europe: France (Civil Law) and United Kingdom (Common Law). To enable this, we built original legal indexes comprising of 158 binary questions that highlight ten major dimensions of corporate bankruptcy procedures: (1) accessibility, (2) exclusivity, (3) bankruptcy costs, (4) production of information, (5) protection of the debtor’s assets, (6) protection of claims, (7) coordination of creditors, (8) decision power, (9) sanction of faulty management, and (10) inclination towards liquidation / reorganization. We then propose a mapping of procedures that shows a clear specialization between them. The French procedures (“redressement judiciaire” and “liquidation judiciaire”) are more protective of the debtor’s assets and favor more the coordination of secured claims, public claims, and unsecured claims. In UK, we find strong opposition between the procedures oriented to liquidation and the other procedures. We then use an original database of 833 French and UK bankruptcy files to measure the recovery rates that are generated by each procedure. We find strong differences be tween them. We then turn to OLS regressions and use our legal indexes to isolate the characteristics of bankruptcy law that significantly impact on the total recovery rate. By controlling for the value of assets, the structure of claims, the origins of default, and the firm characteristics, we test for several hypotheses. We first isolate the legal features of bankruptcy procedures that are associated to higher total recovery rates: namely, accessibility of the procedure, protection of the debtor’s assets, protection and coordination of claims, orientation towards reorganization, and bankruptcy costs. From that perspective, these costs are not sunk cost only, but can be viewed as the counterpart of a service provided by the practitioners that eventually serve the creditors’ recoveries. On the contrary, we find that the production of information under bankruptcy has a negative impact on total recoveries, probably due to the breach in confidentiality. Last, some dimensions of corporate bankruptcy law are not significantly related to total recovery rates (inclination towards liquidation, severity towards faulty management).

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://ifs.u-strasbg.fr/large/publications/2011/2011-02.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg in its series Working Papers of LaRGE Research Center with number 2011-02.

as in new window
Length:
Date of creation: 2011
Date of revision:
Handle: RePEc:lar:wpaper:2011-02

Contact details of provider:
Postal: 61, Avenue de la Forêt Noire, F-67085 Strasbourg Cedex
Phone: (33) 3 90 41 41 30
Fax: (33) 3 90 41 40 50
Web page: http://ifs.unistra.fr/large
More information through EDIRC

Related research

Keywords: Bankruptcy laws; recovery rates; legal indexes.;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Tatiana Škerlíková, 2012. "Findings from Literature Review with Focus on the Law Influence on Bankruptcy Initiation," Český finanční a účetní časopis, University of Economics, Prague, vol. 2012(4), pages 120-131.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:lar:wpaper:2011-02. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christophe J. Godlewski).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.