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Financial Costs of Judicial Inexperience: Evidence From Corporate Bankruptcies

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  • Iverson, Benjamin
  • Madsen, Joshua
  • Wang, Wei
  • Xu, Qiping

Abstract

Exploiting the random assignment of judges to corporate bankruptcy filings, we estimate financial costs of judicial inexperience. Despite new judges’ prior legal experience, formal education, and rigorous hiring process, their public Chapter 11 cases spend 19% more time in bankruptcy, realize 31% higher legal and professional fees, and 21% lower creditor recovery rates. Examining possible mechanisms, we find that new judges take longer to rule on motions and cases assigned to these judges file more plans of reorganization. Conservative estimates suggest that minor policy adjustments could increase creditor recoveries by approximately $16.8 billion for the public firms in our sample.

Suggested Citation

  • Iverson, Benjamin & Madsen, Joshua & Wang, Wei & Xu, Qiping, 2023. "Financial Costs of Judicial Inexperience: Evidence From Corporate Bankruptcies," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 58(3), pages 1111-1143, May.
    • Handle: RePEc:cup:jfinqa:v:58:y:2023:i:3:p:1111-1143_6
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    Cited by:

    1. Jiang, Hai & Chen, Shuangyi & Chen, Peng, 2026. "Do online judicial auctions matter for bank risk-taking? Evidence of Chinese commercial banks," Research in International Business and Finance, Elsevier, vol. 83(C).
    2. Cheng, Zijun & Hu, Jiayin & Huang, Michael Beichen & Zhao, Shijie, 2026. "Bankruptcy resolution and corporate debt maturity," China Economic Review, Elsevier, vol. 95(C).
    3. Ye, Yongwei & Kong, Dongmin & Li, Renzhi & Li, Xiaofan & Tao, Yunqing, 2024. "Online judicial auction, loan availability, and corporate investment in China," The British Accounting Review, Elsevier, vol. 56(6).
    4. Liu, Ye & Li, Ziping, 2025. "Establishment of bankruptcy courts and corporate investment decisions," International Review of Economics & Finance, Elsevier, vol. 101(C).

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