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What Drives the Optimal Bankruptcy Law Design? (in English)

Author

Listed:
  • Ondøej Knot

    (CERGE-EI, Prague, and Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague)

  • Ondøej Vychodil

    (CERGE-EI, Prague, and Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague)

Abstract

In this paper the authors discuss the factors that interact in the design of an optimal bankruptcy law. The authors focus on issues that are often overlooked in both the policy debate and in the academic research on bankruptcy. After answering the question why a bankruptcy law is needed at all, the authors discuss the criteria of ex ante vs. ex post efficiency. The second factor the authors deal with is institutional quality, namely the quality of the judiciary. They argue that, considering factors such as imprudence and corruption, it may be optimal to resign on the first-best solution that could be theoretically achievable with a benevolent and omniscient judiciary. The optimal bankruptcy law would then contain more simple and automatic rules and less space for judicial (i.e., individual) discretion. The authors´ concluding comment concerns the lack of empirical research in the bankruptcy area in the Czech Republic and the essential need for such research.

Suggested Citation

  • Ondøej Knot & Ondøej Vychodil, 2005. "What Drives the Optimal Bankruptcy Law Design? (in English)," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 55(3-4), pages 110-123, March.
  • Handle: RePEc:fau:fauart:v:55:y:2005:i:3-4:p:110-123
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    File URL: http://journal.fsv.cuni.cz/storage/1011_s_110_123.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Markéta Arltová & Jan Plaček & Luboš Smrčka, 2015. "Parameters of insolvency proceedings in developed countries and their dependence on economic performance," Ekonomika a Management, Prague University of Economics and Business, vol. 2015(2).
    2. Jiří Hlaváček & Michal Hlaváček, 2006. ""Principal - Agent" Problem in the Context of the Economic Survival [Problém "principál - agent" při maximalizaci pravděpodobnosti ekonomického přežití]," Acta Oeconomica Pragensia, Prague University of Economics and Business, vol. 2006(3), pages 18-33.
    3. Karel Janda, 2007. "Optimal Debt Contracts in Emerging Markets with Multiple Investors," Prague Economic Papers, Prague University of Economics and Business, vol. 2007(2), pages 115-129.
    4. Luboš Smrčka & Markéta Arltová & Jaroslav Schönfeld, 2013. "Příčiny neúspěchu prosazování sanačních postupů v insolvenční realitě [Reasons for the Failure to Implement Financial Rehabilitation Procedures in Insolvent Reality]," Politická ekonomie, Prague University of Economics and Business, vol. 2013(2), pages 188-208.
    5. Karel Janda, 2006. "Agency Theory Approach to the Contracting between Lender and Borrower [Smluvní vztah mezi věřitelem a dlužníkem z hlediska přístupu teorie zastoupení]," Acta Oeconomica Pragensia, Prague University of Economics and Business, vol. 2006(3), pages 34-47.
    6. Karel Janda, 2011. "Credit Guarantees and Subsidies when Lender has a Market Power," Working Papers IES 2011/18, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jun 2011.
    7. Karel Janda, 2006. "Lender and Borrower as Principal and Agent," Working Papers IES 2006/24, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jul 2006.

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    More about this item

    Keywords

    bankruptcy; capital and ownership structure; ex-ante and ex-post efficiency; moral hazard; judicial corruption;
    All these keywords.

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • K29 - Law and Economics - - Regulation and Business Law - - - Other

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