What Discount Rate Should Bankruptcy Judges Use? Estimate from Canadian Reorganization Data

Fabrice Barthélémy (), Timothy Fisher and Jocelyn Martel ()
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Jocelyn Martel: ESSEC Business School

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Abstract: Using data from financial reorganization plans filed by insolvent Canadian firms, we estimate the discount rate implicit in theunsecured creditors' reorganization decision. Using (HARA) utility functions, we find the implicit monthly discount rate of creditors to be 4.9%, which corresponds to an annual discount rate of 77%. This is 7 to 10 times higher than discount rates used in previous empirical studies of reorganization. The discount rate estimates are robust to a range of assumptions about the degree of risk aversion and the market-to-book-value ratio of assets.

Keywords: Bankruptcy; Reorganization; discount rate (search for similar items in EconPapers)
Date: 2009-03
Note: View the original document on HAL open archive server: https://hal.science/hal-00707413v1
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Citations: View citations in EconPapers (1)

Published in International Review of Law and Economics, 2009, 29 (1), pp.67-72

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Related works:
Journal Article: What discount rate should bankruptcy judges use? Estimates from Canadian reorganization data (2009)
Working Paper: What Discount Rate Should Bankruptcy Judges Use? Estimates from Canadian Reorganization Data (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00707413

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