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How do insolvency codes affect a firm's investment?

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  • Pindado, Julio
  • Rodrigues, Luis
  • de la Torre, Chabela

Abstract

This paper provides an ex ante analysis of the effect of financial insolvency codes on investment by examining the main characteristics embodied in several codes that may cause investment distortions. The results from the estimation of an extended version of the q model of investment show a negative relationship between ex ante insolvency costs and investment. Furthermore, most of the analysed characteristics of insolvency codes negatively impact on investment; however, the magnitude of this effect is greater concerning those of reorganization without creditors' consent and creditors' lack of control, as compared to those of automatic stay and the violation of absolute priority.

Suggested Citation

  • Pindado, Julio & Rodrigues, Luis & de la Torre, Chabela, 2008. "How do insolvency codes affect a firm's investment?," International Review of Law and Economics, Elsevier, vol. 28(4), pages 227-238, December.
  • Handle: RePEc:eee:irlaec:v:28:y:2008:i:4:p:227-238
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    References listed on IDEAS

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    Cited by:

    1. Camacho-Miñano, María-del-Mar & Campa, Domenico, 2014. "Integrity of financial information as a determinant of the outcome of a bankruptcy procedure," International Review of Law and Economics, Elsevier, vol. 37(C), pages 76-85.
    2. Domenico Campa & María del Mar Camacho Miñano, 2013. "Opportunistic earnings manipulation among bankrupt unlisted firms - How and when they do that -
      [Manipulación de resultados oportunista entre empresas en concurso no cotizadas – cómo y cuando lo ha
      ," Documentos de trabajo de la Facultad de Ciencias Económicas y Empresariales 13-05, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales.

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