The Impact of Delay: Evidence from Formal Out-of-Court Restructuring

Stjepan Srhoj, Dejan Kovac, Jacob N. Shapiro and Randall Filer

CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague

Abstract: Bankruptcy restructuring procedures are used in most legal systems to decide the fate of businesses facing financial hardship. We study how bargaining failures in such procedures impact the economic performance of participating firms in the context of Croatia, which introduced a “pre-bankruptcy settlement” (PBS) process in the wake of the Great Recession of 2007 - 2009. Local institutions left over from the communist era provide annual financial statements for both sides of more than 180,000 debtorcreditor pairs, enabling us to address selection into failed negotiations by matching a rich set of creditor and debtor characteristics. Failures to settle at the PBS stage due to idiosyncratic bargaining problems, which effectively delays entry into the standard bankruptcy procedure, leads to a lower rate of survival among debtors as well as reduced employment, revenue, and profits. We also track how bargaining failures diffuse through the network of creditors, finding a significant negative effect on small creditors, but not others. Our results highlight the impact of delay and the importance of structuring bankruptcy procedures to rapidly resolve uncertainty about firms’ future prospects.

Keywords: bankruptcy; insolvency; liquidation; restructuring (search for similar items in EconPapers)
JEL-codes: D02 G33 G34 L38 P37 (search for similar items in EconPapers)
Date: 2021-08
New Economics Papers: this item is included in nep-cfn, nep-fdg and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: The impact of delay: Evidence from formal out-of-court restructuring (2023)
Working Paper: The Impact of Delay: Evidence from Formal Out-of-Court Restructuring (2021)
Working Paper: The Impact of Delay: Evidence from Formal Out-of-Court Restructuring (2021)
Working Paper: The Impact of Delay: Evidence from Formal Out-of-Court Restructuring (2021)
Working Paper: The Impact of Delay: Evidence from Formal Out-of-Court Restructuring (2021)
Working Paper: The impact of delay: Evidence from formal out-of-court restructuring (2021)
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