What Discount Rate Should Bankruptcy Judges Use? Estimate from Canadian Reorganization Data
Using data from financial reorganization plans filed by insolvent Canadian firms, we estimate the discount rate implicit in theunsecured creditors' reorganization decision. Using (HARA) utility functions, we find the implicit monthly discount rate of creditors to be 4.9%, which corresponds to an annual discount rate of 77%. This is 7 to 10 times higher than discount rates used in previous empirical studies of reorganization. The discount rate estimates are robust to a range of assumptions about the degree of risk aversion and the market-to-book-value ratio of assets.
|Date of creation:||2009/03|
|Publication status:||Published in International Review of Law and Economics, Elsevier, 2009, 29 (1), pp.67-72|
|Note:||View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00707413|
|Contact details of provider:|| Web page: https://hal.archives-ouvertes.fr/|
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