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Building legal indexes to explain recovery rates: An analysis of the French and English bankruptcy codes

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  • Blazy, Régis
  • Chopard, Bertrand
  • Nigam, Nirjhar

Abstract

The paper analyzes the characteristics of bankruptcy procedures that may impact on creditors’ recoveries. We propose 132 legal indexes accounting for the main functions of bankruptcy codes: namely, the accessibility of the procedures, their ability to disclose information, the protection of debtor’s assets, the coordination of the claimants and their decision power, and the sanction of management. The French procedures are more protective of the debtor’s assets and prioritize the coordination of claims. In England, liquidation procedures protect more secured claims, while unsecured creditors have more decision power under reorganization procedures. Our indexes are then used to explain recovery rates on a set of 833 bankrupt SMEs. Several bankruptcy rules are associated with higher recoveries: namely, accessibility of the procedure, protection of the debtor’s assets, protection of claims, and sanction of faulty management. On the contrary, information disclosure has negative impact on recoveries, probably due to the breach in confidentiality.

Suggested Citation

  • Blazy, Régis & Chopard, Bertrand & Nigam, Nirjhar, 2013. "Building legal indexes to explain recovery rates: An analysis of the French and English bankruptcy codes," Journal of Banking & Finance, Elsevier, vol. 37(6), pages 1936-1959.
  • Handle: RePEc:eee:jbfina:v:37:y:2013:i:6:p:1936-1959
    DOI: 10.1016/j.jbankfin.2012.10.024
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Nicolae Stef, 2017. "Bankruptcy and the difficulty of firing," EconomiX Working Papers 2017-26, University of Paris Nanterre, EconomiX.
    2. Régis BLAZY & Nicolae STEF, 2015. "How do bankruptcy systems perform in Eastern Europe?," Working Papers of LaRGE Research Center 2015-07, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    3. Jaka Cepec & Peter Grajzl & Katarina Zajc, 2016. "Debt Recovery in Firm Liquidations: Do Liquidation Trustees Matter?," CESifo Working Paper Series 6034, CESifo Group Munich.
    4. Blazy, Régis & Martel, Jocelyn & Nigam, Nirjhar, 2014. "The choice between informal and formal restructuring: The case of French banks facing distressed SMEs," Journal of Banking & Finance, Elsevier, vol. 44(C), pages 248-263.
    5. repec:kap:ejlwec:v:45:y:2018:i:2:d:10.1007_s10657-017-9560-9 is not listed on IDEAS
    6. Régis BLAZY & Nirjhar NIGAM, 2018. "Corporate insolvency procedures in England: The uneasy case for liquidations," Working Papers of LaRGE Research Center 2018-02, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    7. Chris Godfrey & Chris Brooks, 2015. "The Negative Credit Risk Premium Puzzle: A Limits to Arbitrage Story," ICMA Centre Discussion Papers in Finance icma-dp2015-07, Henley Business School, Reading University.
    8. repec:eee:irlaec:v:54:y:2018:i:c:p:85-94 is not listed on IDEAS

    More about this item

    Keywords

    Bankruptcy; Recoveries; Legal indexes;

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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