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Ex-ante Efficiency of Bankruptcy Procedures

  • Francesca Cornelli

    (London Business School)

  • Leonardo Felli

    (London School of Economics)

This paper suggests a framework to analyze the efficiency properties of bankruptcy procedures, distinguishing between ex-ante and ex-post efficiency. Ex-post efficiency consists in maximizing the ex-post value of the insolvent firm, whereas ex-ante efficiency consists in maximizing the proceeds to creditors from the reorganization of the firm and providing incentives for the creditors to monitor the firm. We show that the definition of creditors rights over the company and the protection of the creditors' seniority, are crucial to asses the ex-ante efficiency of a bankruptcy procedure.

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Paper provided by EconWPA in its series Finance with number 9610001.

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Length: 14 pages
Date of creation: 07 Oct 1996
Date of revision:
Handle: RePEc:wpa:wuwpfi:9610001
Note: Type of Document - Latex; prepared on IBM PC - PC-TEX; to print on PostScript 300DPI; pages: 14
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Aghion, Philippe & Hart, Oliver & Moore, John, 1992. "The Economics of Bankruptcy Reform," Journal of Law, Economics and Organization, Oxford University Press, vol. 8(3), pages 523-46, October.
  2. Zingales, Luigi, 1995. "Insider Ownership and the Decision to Go Public," Review of Economic Studies, Wiley Blackwell, vol. 62(3), pages 425-48, July.
  3. Weiss, Lawrence A., 1990. "Bankruptcy resolution: Direct costs and violation of priority of claims," Journal of Financial Economics, Elsevier, vol. 27(2), pages 285-314, October.
  4. Bebchuk, Lucian Ayre & Chang, Howard F, 1992. "Bargaining and the Division of Value in Corporate Reorganization," Journal of Law, Economics and Organization, Oxford University Press, vol. 8(2), pages 253-79, April.
  5. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
  6. Jeremy Bulow & Ming Huang & Paul Klemperer, 1999. "Toeholds and Takeovers," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 427-454, June.
  7. Franks, Julian R & Torous, Walter N, 1992. "Lessons from a Comparison of U.S. and U.K. Insolvency Codes," Oxford Review of Economic Policy, Oxford University Press, vol. 8(3), pages 70-82, Autumn.
  8. Baird, Douglas G & Picker, Randal C, 1991. "A Simple Noncooperative Bargaining Model of Corporate Reorganizations," The Journal of Legal Studies, University of Chicago Press, vol. 20(2), pages 311-49, June.
  9. Aghion, Philippe & Bolton, Patrick, 1992. "An Incomplete Contracts Approach to Financial Contracting," Review of Economic Studies, Wiley Blackwell, vol. 59(3), pages 473-94, July.
  10. Burkart, Mike, 1995. " Initial Shareholdings and Overbidding in Takeover Contests," Journal of Finance, American Finance Association, vol. 50(5), pages 1491-1515, December.
  11. Bolton, Patrick & Scharfstein, David S, 1996. "Optimal Debt Structure and the Number of Creditors," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 1-25, February.
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