How do judges judge? Evidence of local effect on French bankruptcy judgments

Stéphane Esquerré ()
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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

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Abstract: Law and Economics literature recently gazed upon the "failure of judges" showing the various biases, psychological but also political, they can display. One of the seminal criticisms against bankruptcy judges focused on their attempt to go beyond the strict applications of law in their decisions. The main drawback is their lack of business-related expertise. The French bankruptcy system was created four centuries ago with this last problem in mind and remains unique today. The bankruptcy judges are elected among local businessmen and top executives. They rule without any professional judge along them, like in mixed courts in Belgium. They are given a key role in the decision as in the U.S.. This chapter shows how judges display a home bias when the area suffers from economic turmoil. They attempt to favor the reorganization of bankrupt firms when the local unemployment rate is high. The analysis is based on an original dataset of all filings for restructuring (Redressement Judiciaire) from 2006 to 2013. This is shown to hold robust despite several tests using survival analysis in a competing risk setting. This effect is found to reduce the time of negotiation between the firm and its creditors with no effect on the survival of the firm after the reorganization plan was agreed upon. We infer that judges cram-down decisions faster in these contexts and let creditors bear the costs of these reorganisations. It underlines how Courts wish to implement decisions that exceed solely debt-collection with a concern for the local area at the risk of hurting the firm's creditors. JEL-Classification: G33, H73, K22

Keywords: Bankruptcy; Judge; Interjurisdictional Differentials and Their Effects (search for similar items in EconPapers)
Date: 2019-09-19
New Economics Papers: this item is included in nep-bec
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