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Will the Bankruptcy Reform Work? An Empirical Analysis of Financial Reorganization in Canada

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  • Timothy C. G. Fisher
  • Jocelyn Martel

Abstract

The new Bankruptcy Act has two clear aims: (i) to increase the number of firms opting for reorganization over liquidation, and (ii) to increase protection for wage earners at bankrupt firms. The paper examines a unique micro data set of 338 commercial financial reorganization proposals filed in Canada during the period 1978-87 to determine whether these aims are likely to be met. Estimates from a logit model of reorganization plan acceptance indicate that the new Act will result in a roughly 7 percentage point increase in the number of reorganization plans that creditors accept. Everything else being equal, these changes are estimated to save about 120 jobs per year in Canada. Thus, while the new Act will increase the rate at which creditors accept reorganization plans, the actual impact of a higher acceptance rate will be quite small.

Suggested Citation

  • Timothy C. G. Fisher & Jocelyn Martel, 1994. "Will the Bankruptcy Reform Work? An Empirical Analysis of Financial Reorganization in Canada," Canadian Public Policy, University of Toronto Press, vol. 20(3), pages 265-277, September.
    • Handle: RePEc:cpp:issued:v:20:y:1994:i:3:p:265-277
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    References listed on IDEAS

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    1. Jocelyn Martel, 1991. "Bankruptcy Law and the Canadian Experience: An Economic Appraisal," Canadian Public Policy, University of Toronto Press, vol. 17(1), pages 52-63, March.
    2. Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1990. "The role of banks in reducing the costs of financial distress in Japan," Journal of Financial Economics, Elsevier, vol. 27(1), pages 67-88, September.
    3. White, Michelle J, 1989. "The Corporate Bankruptcy Decision," Journal of Economic Perspectives, American Economic Association, vol. 3(2), pages 129-151, Spring.
    4. Gunderson, Morley & Kervin, John & Reid, Frank, 1986. "Logit Estimates of Strike Incidence from Canadian Contract Data," Journal of Labor Economics, University of Chicago Press, vol. 4(2), pages 257-276, April.
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    Cited by:

    1. Leyman, Bart & Schoors, Koen J.L. & Coussement, Peter, 2011. "Does court-supervised reorganization work? Evidence from post-confirmation firm failure," International Review of Law and Economics, Elsevier, vol. 31(3), pages 149-168, September.
    2. 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 233-257, January.
    3. Timothy C.G. Fisher & Jocelyn Martel, 2004. "Empirical Estimates of Filtering Failure in Court‐Supervised Reorganization," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 1(1), pages 143-164, March.
    4. Timothy C. G. Fisher & Jocelyn Martel, 2003. "The Effect of Bankruptcy Reform on the Number of Corporate Reorganization Proposals," Canadian Public Policy, University of Toronto Press, vol. 29(3), pages 339-349, September.
    5. Martel, Jocelyn, 1996. "Impact anticipé de la réforme à la loi sur la faillite," L'Actualité Economique, Société Canadienne de Science Economique, vol. 72(4), pages 417-432, décembre.
    6. B. Leyman & K. Schoors & P. Coussement, 2008. "The Role of Firm Viability, Creditor Behavior and Judicial Discretion in the Failure of Distressed Firms under Courtsupervised Restructuring: Evidence from Belgium," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 08/509, Ghent University, Faculty of Economics and Business Administration.
    7. T. C. G. Fisher & J. Martel, 2001. "A Comparison of Business Bankruptcies across Industries in Canada, 1981-2000," THEMA Working Papers 2001-03, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    8. Bart Leyman, 2012. "The uneasy case for rehabilitating small firms under the 1997-reorganization law in Belgium: evidence from reorganization plans," European Journal of Law and Economics, Springer, vol. 34(3), pages 533-560, December.
    9. Jocelyn Martel, 1996. "Solutions au stress financier : Un survol de la littérature," CIRANO Working Papers 96s-03, CIRANO.
    10. Martel, Jocelyn, 1996. "Solutions au stress financier," L'Actualité Economique, Société Canadienne de Science Economique, vol. 72(1), pages 51-78, mars.
    11. B. Leyman & K. Schoors & P. Coussement, 2008. "Court-supervised Restructuring: Pre-bankruptcy Dynamics, Debt Structure and Debt Rescheduling," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 08/507, Ghent University, Faculty of Economics and Business Administration.
    12. Timothy C.G. Fisher & Jocelyn Martel, 2012. "The Impact of Debtor-Friendly Reforms on the Performance of a Reorganization Procedure," Working Papers hal-00707359, HAL.

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