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Why Do Distressed Companies Choose Delaware? An Empirical Analysis of Venue Choice in Bankruptcy

Author

Listed:
  • Kenneth Ayotte

    (Columbia Business School)

  • David Skeel

    (University of Pennsylvania Law School)

Abstract

We analyze a sample of large Chapter 11 cases to determine which factors motivate the choice of filing in one court over another when a choice is available. We focus in particular on the Delaware court, which became the most popular venue for large corporations in the 1990s. We find no evidence of agency problems governing the venue choice or affecting the outcome of the bankruptcy process. Instead, firm characteristics and court characteristics, particularly a court's level of experience, are the most important factors. We find that court experience manifests itself in both a greater ability to reorganize marginal firms and in reorganizing such firms faster. Delaware is similar to other high-experience courts in terms of the likelihood of reorganization controlling for firm characteristics, but is a standout in terms of speed. We estimate that a Delaware bankruptcy requires approximately 40% less time to complete than an equivalent case in another court.

Suggested Citation

  • Kenneth Ayotte & David Skeel, "undated". "Why Do Distressed Companies Choose Delaware? An Empirical Analysis of Venue Choice in Bankruptcy," Scholarship at Penn Law upenn_wps-1023, University of Pennsylvania Law School.
    • Handle: RePEc:bep:upennl:upenn_wps-1023
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    File URL: http://lsr.nellco.org/cgi/viewcontent.cgi?article=1023&context=upenn/wps
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    References listed on IDEAS

    as
    1. Hotchkiss, Edith Shwalb, 1995. "Postbankruptcy Performance and Management Turnover," Journal of Finance, American Finance Association, vol. 50(1), pages 3-21, March.
    2. Povel, Paul, 1999. "Optimal "Soft" or "Tough" Bankruptcy Procedures," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 15(3), pages 659-684, October.
    3. Roberta Romano, 1998. "Empowering Investors: A Market Approach to Securities Regulation," Yale School of Management Working Papers ysm74, Yale School of Management.
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    Cited by:

    1. Sattar A. Mansi & William F. Maxwell & John K. Wald, 2009. "Creditor Protection Laws and the Cost of Debt," Journal of Law and Economics, University of Chicago Press, vol. 52(4), pages 701-717, November.
    2. Daniel M. Covitz & Song Han & Beth Anne Wilson, 2006. "Are longer bankruptcies really more costly?," Finance and Economics Discussion Series 2006-27, Board of Governors of the Federal Reserve System (U.S.).
    3. Surendranath Jory & Jeff Madura, 2010. "The long-run performance of firms emerging from Chapter 11 bankruptcy," Applied Financial Economics, Taylor & Francis Journals, vol. 20(14), pages 1145-1161.
    4. Meradj Mortezapouraghdam, 2016. "Three Essays on the Role of Frictions in the Economy," Sciences Po publications info:hdl:2441/293qice3lj8, Sciences Po.
    5. repec:hal:spmain:info:hdl:2441/293qice3lj861rvos9ns14n0h0 is not listed on IDEAS
    6. Hülya K. K. Eraslan, 2008. "Corporate Bankruptcy Reorganizations: Estimates From A Bargaining Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(2), pages 659-681, May.
    7. Nicola Gennaioli & Stefano Rossi, 2010. "Judicial Discretion in Corporate Bankruptcy," The Review of Financial Studies, Society for Financial Studies, vol. 23(11), pages 4078-4114, November.
    8. Hallak, Issam, 2003. "Courts and sovereign eurobonds: Credibility of the judicial enforcement of repayment," CFS Working Paper Series 2003/34, Center for Financial Studies (CFS).

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    Keywords

    bankruptcy; Chapter 11; venue choice; forum shopping; Delaware; reorganization;
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