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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
    1. Oliver Hart, 2000. "Different Approaches to Bankruptcy," NBER Working Papers 7921, National Bureau of Economic Research, Inc.
    2. Philippe Aghion & Oliver D. Hart & John Moore, 1994. "The Economics of Bankruptcy Reform," NBER Chapters,in: The Transition in Eastern Europe, Volume 2: Restructuring, pages 215-244 National Bureau of Economic Research, Inc.
    3. Lambert-Mogiliansky, Ariane & Sonin, Konstantin & Zhuravskaya, Ekaterina, 2000. "Capture of Bankruptcy: Theory and Evidence from Russia," CEPR Discussion Papers 2488, C.E.P.R. Discussion Papers.
    4. Ernst-Ludwig VON THADDEN & Erik BERGLÖF & Gérard ROLAND, 2003. "Optimal Debt Design and the Role of Bankruptcy," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 03.13, Université de Lausanne, Faculté des HEC, DEEP.
    5. Bolton, Patrick & Scharfstein, David S, 1996. "Optimal Debt Structure and the Number of Creditors," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 1-25, February.
    6. Berkovitch, Elazar & Israel, Ronen, 1999. "Optimal Bankruptcy Laws across Different Economic Systems," Review of Financial Studies, Society for Financial Studies, vol. 12(2), pages 347-377.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Karel Janda, 2007. "Optimal Debt Contracts in Emerging Markets with Multiple Investors," Prague Economic Papers, University of Economics, Prague, vol. 2007(2), pages 115-129.
    2. 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.
    3. Markéta Arltová & Jan Plaček & Luboš Smrčka, 2015. "Parameters of insolvency proceedings in developed countries and their dependence on economic performance," Ekonomika a Management, University of Economics, Prague, vol. 2015(2).
    4. 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.

    More about this item

    Keywords

    bankruptcy; capital and ownership structure; ex-ante and ex-post efficiency; moral hazard; judicial corruption;

    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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