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:||Mar 2009|
|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/|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Fisher, Timothy C G & Martel, Jocelyn, 1999.
"Should We Abolish Chapter 11? Evidence from Canada,"
The Journal of Legal Studies,
University of Chicago Press, vol. 28(1), pages 233-257, January.
- Timothy C. G. Fisher & Jocelyn Martel, 1996. "Should We Abolish Chapter 11 : Evidence from Canada," CIRANO Working Papers 96s-22, CIRANO.
- Eisenberg, Theodore & Tagashira, Shoichi, 1994. "Should We Abolish Chapter 11? The Evidence from Japan," The Journal of Legal Studies, University of Chicago Press, vol. 23(1), pages 111-157, January.
- F. Barthelemy & T. C.G. Fisher & J. Martel, 2004. "Estimates of Creditors' Discount Rates in Court-Supervised Reorganisation Decisions," THEMA Working Papers 2004-16, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
- T.C.G. Fisher & J. Martel, 2000. "Empirical Estimates of Filtering Failure in Court-Supervised reorganization," THEMA Working Papers 2000-45, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
- Saul Pleeter & John T. Warner, 2001. "The Personal Discount Rate: Evidence from Military Downsizing Programs," American Economic Review, American Economic Association, vol. 91(1), pages 33-53, March.
- Moore, Michael J & Viscusi, W Kip, 1990. "Models for Estimating Discount Rates for Long-term Health Risks Using Labor Market Data," Journal of Risk and Uncertainty, Springer, vol. 3(4), pages 381-401, December.
- Dreyfus, Mark K & Viscusi, W Kip, 1995. "Rates of Time Preference and Consumer Valuations of Automobile Safety and Fuel Efficiency," Journal of Law and Economics, University of Chicago Press, vol. 38(1), pages 79-105, April.
- Jerry A. Hausman, 1979. "Individual Discount Rates and the Purchase and Utilization of Energy-Using Durables," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 33-54, Spring.
- Dermot Gately, 1980. "Individual Discount Rates and the Purchase and Utilization of Energy-Using Durables: Comment," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 373-374, Spring. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:hal:journl:hal-00707413. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD)
If references are entirely missing, you can add them using this form.