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Bankruptcy Costs and the Design of Preventive Restructuring Procedures


  • Anne Épaulard

    (Université Paris-Dauphine, PSL Research University, France Stratégie, Commissariat général à la stratégie et à la prospective)

  • Chloé Zapha

    (Université Paris-Dauphine, PSL Research University, France Stratégie, Commissariat général à la stratégie et à la prospective)


This paper measures the indirect costs of public Court-supervised bankruptcy filings in France. Due to self-fulfilling expectations, these indirect costs are likely all the more serious when the track-record of the bankruptcy procedure is poor. We take advantage of the coexistence of two Court-supervised debt-restructuring bankruptcy procedures that yield radically different results in term of firm survival. Our identification strategy relies on the heterogeneity in Commercial Courts' decisions to convert cases from the preventive restructuring procedure to the more common one. Using an (almost) exhaustive sample of bankruptcy filings in France over the 2010-2016 period, we show that conversion to the worst procedure reduces the probability of firm survival by 60 pp. This corresponds to an indirect cost of bankruptcy of between 20% and 30% of firm assets. We discuss the lessons that can be drawn for the design of preventive restructuring bankruptcy procedures. JEL Classification : G33, K22.

Suggested Citation

  • Anne Épaulard & Chloé Zapha, 2019. "Bankruptcy Costs and the Design of Preventive Restructuring Procedures," Working Papers hal-02383494, HAL.
  • Handle: RePEc:hal:wpaper:hal-02383494
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    References listed on IDEAS

    1. Arturo Bris & Ivo Welch & Ning Zhu, 2006. "The Costs of Bankruptcy: Chapter 7 Liquidation versus Chapter 11 Reorganization," Journal of Finance, American Finance Association, vol. 61(3), pages 1253-1303, June.
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    6. Heitor Almeida & Thomas Philippon, 2007. "The Risk‐Adjusted Cost of Financial Distress," Journal of Finance, American Finance Association, vol. 62(6), pages 2557-2586, December.
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    8. Stéphane Esquerré, 2019. "Court structure and legal efficiency, the case of French échevinage in bankruptcy courts," Working Papers hal-02305492, HAL.
    9. Altman, Edward I, 1984. " A Further Empirical Investigation of the Bankruptcy Cost Question," Journal of Finance, American Finance Association, vol. 39(4), pages 1067-1089, September.
    10. Gregor Andrade & Steven N. Kaplan, 1998. "How Costly is Financial (Not Economic) Distress? Evidence from Highly Leveraged Transactions that Became Distressed," Journal of Finance, American Finance Association, vol. 53(5), pages 1443-1493, October.
    11. Ali Hortaçsu & Gregor Matvos & Chad Syverson & Sriram Venkataraman, 2013. "Indirect Costs of Financial Distress in Durable Goods Industries: The Case of Auto Manufacturers," Review of Financial Studies, Society for Financial Studies, vol. 26(5), pages 1248-1290.
    12. Opler, Tim C & Titman, Sheridan, 1994. " Financial Distress and Corporate Performance," Journal of Finance, American Finance Association, vol. 49(3), pages 1015-1040, July.
    13. G. Meeks & J. G. Meeks, 2009. "Self‐Fulfilling Prophecies of Failure: The Endogenous Balance Sheets of Distressed Companies," Abacus, Accounting Foundation, University of Sydney, vol. 45(1), pages 22-43, March.
    14. Tucker, Robert R. & Matsumura, Ella Mae & Subramanyam, K. R., 2003. "Going-concern judgments: An experimental test of the self-fulfilling prophecy and forecast accuracy," Journal of Accounting and Public Policy, Elsevier, vol. 22(5), pages 401-432.
    15. Müge Adalet McGowan & Dan Andrews & Valentine Millot, 2017. "Insolvency regimes, zombie firms and capital reallocation," OECD Economics Department Working Papers 1399, OECD Publishing.
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    More about this item


    Corporate Bankruptcy; Costs of Bankruptcy; Law and Economics;

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law


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