Lehman's Bankruptcy Expenses

Erin Denison, Michael Fleming and Asani Sarkar

No 20190115, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: In bankruptcy, firms incur expenses for services provided by lawyers, accountants, and other professionals. Such expenses can be quite high, especially for complex resolutions. These direct costs of bankruptcy proceedings reduce a firm’s value below its fundamental level, thus constituting a “deadweight loss.” Bankruptcy also carries indirect costs, such as the loss in value of assets trapped in bankruptcy—a subject discussed in our previous post. In this post, we provide the first comprehensive estimates of the direct costs of resolving Lehman Brothers’ holding company (LBHI) and its affiliates under Chapter 11 of the U.S. Bankruptcy Code, and of Lehman’s broker-dealer (LBI) under the Securities Investor Protection Act (SIPA).

Keywords: Lehman bankruptcy; direct costs; chapter 11 (search for similar items in EconPapers)
JEL-codes: G33 (search for similar items in EconPapers)
Date: 2019-01-15
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