Measuring the ex-ante incentive effects of creditor control rights during bankruptcy reorganization

Ashwini Agrawal, Juanita González-Uribe and Jimmy Martínez-Correa

Journal of Financial Economics, 2022, vol. 143, issue 1, 381-408

Abstract: A large theoretical literature studies the effects of creditor control during bankruptcy proceedings on firm outcomes. Empirical work in this area mainly examines reforms to creditor control rights during liquidation. In this paper, we use administrative microdata and exploit a legal reform in Denmark to provide the first causal estimates of creditor empowerment in reorganization-the complementary bankruptcy procedure to liquidation. We find that the Danish reform led to a sharp decline in liquidations. Although few insolvent firms make use of the new reorganization procedures, we show that solvent firms improved their financial management and increased employment and investment. The findings illustrate the empirical importance of reorganization rules on the incentives of stakeholders outside of bankruptcy.

Keywords: Bankruptcy; Reorganization; Liquidation; Creditors; Debtors (search for similar items in EconPapers)
JEL-codes: G18 G33 G34 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:143:y:2022:i:1:p:381-408

DOI: 10.1016/j.jfineco.2021.09.020

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