IDEAS home Printed from https://ideas.repec.org/p/hal/wpaper/hal-02305501.html
   My bibliography  Save this paper

Don't feed the zombies Essay on survival of bankrupt firms in French bankrupcty courts

Author

Listed:
  • Stéphane Esquerré

    (LARGE - Laboratoire de recherche en gestion et économie - UNISTRA - Université de Strasbourg - L'europe en mutation : histoire, droit, économie et identités culturelles - UNISTRA - Université de Strasbourg - CNRS - Centre National de la Recherche Scientifique)

Abstract

"Don't feed the zombies" is the bottom line argument to condemn the risk in pro-continuation bankruptcy systems, promoting survival of non-viable businesses. Feeding this firms may prevent reallocation of capital from distressed firms to healthy ones. It may also destabilize bargaining power between debtors and creditors, reinforcing the former. Here we want to test the truth of this argument by looking at the French reform of the commercial jurisdiction in 2011. The procontinuation bias is modeled looking at the proportion of firms that the court decides to reorganize despite them not having enough assets to cover all the legal bankruptcy costs. Theses firms are considered zombie firms. We examine whether jurisdictions differ in their decisions after a change of the judicial maps. Some courts may have been absorbed or may have absorbed others while some remain unaffected. We are able to pin down structural motivations for pro-continuation bias with no other legal changes and within a single country. After a court is absorbed, this bias drops significantly. Yet the overall survival rate of reorganized firms remains the same. These results show how proximity to the parties may help judges take decisions despite counter-intuitive negative financial information. But theses rulings are made with no regard to the firm's creditors. Since it is only the smaller courts that are absorbed by larger ones, the paper also gives hindsight on the effect of court's size on bankruptcy.

Suggested Citation

  • Stéphane Esquerré, 2019. "Don't feed the zombies Essay on survival of bankrupt firms in French bankrupcty courts," Working Papers hal-02305501, HAL.
    • Handle: RePEc:hal:wpaper:hal-02305501
    Note: View the original document on HAL open archive server: https://hal.science/hal-02305501
    as

    Download full text from publisher

    File URL: https://hal.science/hal-02305501/document
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Chappe, Nathalie & Obidzinski, Marie, 2014. "The impact of the number of courts on the demand for trials," International Review of Law and Economics, Elsevier, vol. 37(C), pages 121-125.
    2. Jouvenel Bertrand de, 1998. "De La Justice," Journal des Economistes et des Etudes Humaines, De Gruyter, vol. 8(1), pages 127-144, March.
    3. repec:bpj:jeehcn:v:8:y:1998:i:1:p:127-144:n:6 is not listed on IDEAS
    4. Blazy, Régis & Chopard, Bertrand & Fimayer, Agnès & Guigou, Jean-Daniel, 2011. "Employment preservation vs. creditors' repayment under bankruptcy law: The French dilemma?," International Review of Law and Economics, Elsevier, vol. 31(2), pages 126-141, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Stéphane Esquerré, 2019. "Court structure and legal efficiency, the case of French échevinage in bankruptcy courts," Working Papers hal-02305492, HAL.
    2. Stéphane Esquerré, 2019. "How do judges judge? Evidence of local effect on French bankruptcy judgments," Working Papers hal-02291688, HAL.
    3. Friehe Tim & Miceli Thomas J., 2017. "A Note on Trial Delay and Social Welfare: The Impact of Multiple Equilibria," Review of Law & Economics, De Gruyter, vol. 13(1), pages 1-15, March.
    4. Blazy, Régis & Chopard, Bertrand & Nigam, Nirjhar, 2013. "Building legal indexes to explain recovery rates: An analysis of the French and English bankruptcy codes," Journal of Banking & Finance, Elsevier, vol. 37(6), pages 1936-1959.
    5. Maarten Hillebrandt, 2017. "Transparency as a Platform for Institutional Politics: The Case of the Council of the European Union," Politics and Governance, Cogitatio Press, vol. 5(3), pages 62-74.
    6. Pascale Amans & Sylvie Rascol-Boutard, 2006. "Controlling Complex Organizations on the Basis of an Operational Performance Measure," Post-Print hal-01659071, HAL.
    7. Csaba VARGA, 2011. "MEETING POINTS BETWEEN THE TRADITIONS OF ENGLISH–AMERICAN COMMON LAW AND CONTINENTAL-FRENCH CIVIL LAW. Developments and the experience of postmodernity in Canada," Curentul Juridic, The Juridical Current, Le Courant Juridique, Petru Maior University, Faculty of Economics Law and Administrative Sciences and Pro Iure Foundation, vol. 44, pages 24-47, March.
    8. Ayadi, Rim & Abid, Ilyes & Guesmi, Khaled, 2021. "Survival of reorganized firms in France," Finance Research Letters, Elsevier, vol. 38(C).
    9. Araujo, Aloisio & Ferreira, Rafael & Lagaras, Spyridon & Moraes, Flavio & Ponticelli, Jacopo & Tsoutsoura, Margarita, 2023. "The labor effects of judicial bias in bankruptcy," Journal of Financial Economics, Elsevier, vol. 150(2).
    10. Randa, Ryan & Wilcox, Pamela, 2010. "School disorder, victimization, and general v. place-specific student avoidance," Journal of Criminal Justice, Elsevier, vol. 38(5), pages 854-861, September.
    11. John M. de Figueiredo & Brian Kelleher Richter, 2013. "Advancing the Empirical Research on Lobbying," NBER Working Papers 19698, National Bureau of Economic Research, Inc.
    12. Rémy Herrera, 2006. "Where is the Cuban economy heading?," Cahiers de la Maison des Sciences Economiques r06032, Université Panthéon-Sorbonne (Paris 1).
    13. Elias Mossialos, 2002. "The European Union and Health Policy, by Ed Randall. Palgrave, Hampshire and New York, 2001. No. of pages: xiii+278. ISBN 0‐333‐75426‐3.. The Implications of Recent Jurisprudence on the Co‐ordination ," Health Economics, John Wiley & Sons, Ltd., vol. 11(3), pages 281-284, April.
    14. Noëlvia Sedoarisoa & Didier Desponds & Laurent Dalmas & Catherine Lavandier, 2017. "Housing prices and the proximity of the Paris -Charles- de-Gaulle (CDG) airport [Prix de l’immobilier et proximité de la plate-forme aéroportuaire de Paris – Charles-de-Gaulle (CDG)]," Post-Print hal-02526101, HAL.
    15. Puhani, Patrick A. & Sonderhof, Katja, 2010. "The effects of a sick pay reform on absence and on health-related outcomes," Journal of Health Economics, Elsevier, vol. 29(2), pages 285-302, March.
    16. Martínez-Usarralde, María-Jesús & Pausá, Juan Murillo & García-López, Rafaela, 2017. "The ERASMUS experience and its capacitating potential: Analysis of adaptive capabilities," International Journal of Educational Development, Elsevier, vol. 53(C), pages 101-109.
    17. Dikau, Simon & Volz, Ulrich, 2021. "Central bank mandates, sustainability objectives and the promotion of green finance," Ecological Economics, Elsevier, vol. 184(C).
    18. Ntanyoma, R.D., 2021. "Under the shadow of violence: slow genocide of the Banyamulenge in Eastern DRC," ISS Working Papers - General Series 682, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
    19. Jaka Cepec & Peter Grajzl & Katarina Zajc, 2016. "Debt Recovery in Firm Liquidations: Do Liquidation Trustees Matter?," CESifo Working Paper Series 6034, CESifo.
    20. Mark Wise, 2000. "From Atlantic Arc to Atlantic Area: A Case of Subsidiarity Against the Regions?," Regional Studies, Taylor & Francis Journals, vol. 34(9), pages 865-873.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:hal-02305501. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.