Bankruptcy Costs and the Design of Preventive Restructuring Procedures

Anne Epaulard and Chloé Zapha
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Chloé Zapha: LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique

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Abstract: A European directive requires Member States to give firms access to preventive restructuring procedures. This paper assesses the interest of a procedure distinct from that for insolvent firms. It is based on the French experience, where a preventive procedure has coexisted with the more common restructuring procedure since 2006. The spatial and temporal heterogeneity of the Commercial Courts' decisions allows the identification of the causal impact of the conversion from the preventive procedure to the common one on the firm's survival chances. Using an (almost) exhaustive sample of preventive bankruptcy fillings over 2010-2016, we show that conversion reduces the probability of firm survival by 50 p.p., which corresponds to indirect bankruptcy costs of around 20% of the firm assets. Our interpretation is that the low restructuring rate under the common bankruptcy procedure may alarm some of the firm's stakeholders, especially its customers. This in turn aggravates the firm's difficulties and reduces its chances of restructuring under the common procedure. We provide some empirical evidence to support this interpretation. A distinct preventive procedure helps prevent this spiral.

Keywords: Corporate Bankruptcy; Costs of Bankruptcy; Law and Economics; Preventive Restructuring (search for similar items in EconPapers)
Date: 2021-05-03
Note: View the original document on HAL open archive server: https://hal.science/hal-03215357v1
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Bankruptcy costs and the design of preventive restructuring procedures (2022)
Working Paper: Bankruptcy Costs and the Design of Preventive Restructuring Procedures (2021)
Working Paper: Bankruptcy Costs and the Design of Preventive Restructuring Procedures (2020)
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