Do the right firms survive bankruptcy?

Samuel Antill

Journal of Financial Economics, 2022, vol. 144, issue 2, 523-546

Abstract: In Chapter 11 bankruptcy cases in the United States, firms are either reorganized, acquired, or liquidated. I show that decisions to liquidate often reduce creditor recovery, costing creditors billions of dollars every year. I exploit the within-district random assignment of bankruptcy judges to estimate a structural model of bankruptcy. I estimate that liquidation is frequently chosen when a reorganization would have maximized total creditor recovery. Liquidations involving “363 sales,” in which managers sell assets without creditor approval, are especially harmful for creditors. I estimate that courts could dramatically improve creditor recovery by assigning liquidations using a statistical model.

Keywords: Bankruptcy; Recovery rate; Structural estimation; Roy model; 363 sales (search for similar items in EconPapers)
JEL-codes: G33 G38 K22 (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:144:y:2022:i:2:p:523-546

DOI: 10.1016/j.jfineco.2021.07.006

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