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The Law and Economics of Corporate Insolvency: A Review

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  • John Armour

Abstract

Law and economics scholarship has contributed greatly to our understanding of corporate insolvency law. This paper provides an overview of this literature. It begins by defining some relevant terminology, and then reviews theories about the goals of insolvency law. It then considers Jackson's well-known claim that insolvency law exists as a response to a common pool problem, and continues by looking at suggestions for reducing the costs of financial distress both ex post and ex ante. Finally, it asks whether a solution to the common pool problem might not be sought through contract, or indeed through reliance on social norms.

Suggested Citation

  • John Armour, 2001. "The Law and Economics of Corporate Insolvency: A Review," Working Papers wp197, Centre for Business Research, University of Cambridge.
  • Handle: RePEc:cbr:cbrwps:wp197
    Note: PRO-2
    as

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    File URL: https://www.cbr.cam.ac.uk/fileadmin/user_upload/centre-for-business-research/downloads/working-papers/wp197.pdf
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    Cited by:

    1. Miguel García-Posada & Juan Mora-Sanguinetti, 2014. "Are there alternatives to bankruptcy? A study of small business distress in Spain," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 5(2), pages 287-332, August.
    2. Robert R. Bliss, 2003. "Bankruptcy law and large complex financial organizations: a primer," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q I, pages 48-58.
    3. Jaka Cepec & Mitja Kovac, 2016. "Carrots and Sticks as Incentive Mechanisms for the Optimal Initiation of Insolvency Proceedings," DANUBE: Law and Economics Review, European Association Comenius - EACO, issue 2, pages 79-103, June.
    4. Valiante, Diego, 2016. "Harmonising Insolvency Laws in the Euro Area: Rationale, stocktaking and challenges," CEPS Papers 12024, Centre for European Policy Studies.
    5. Saul Estrin & Tomasz Mickiewicz & Anna Rebmann, 2017. "Prospect theory and the effects of bankruptcy laws on entrepreneurial aspirations," Small Business Economics, Springer, vol. 48(4), pages 977-997, April.
    6. Robert R. Bliss, 2003. "Resolution of large complex financial organizations," Working Paper Series WP-03-07, Federal Reserve Bank of Chicago.
    7. John Armour, 2002. "Law, Innovation and Finance: A Review," Working Papers wp243, Centre for Business Research, University of Cambridge.

    More about this item

    Keywords

    law and economics; corporate insolvency; financial distress; social norms;

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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