Judicial Discretion in Corporate Bankruptcy

Nicola Gennaioli and Stefano Rossi

No 2008-5, CEI Working Paper Series from Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University

Abstract: We study a demand and supply model of judicial discretion in corporate bankruptcy. On the supply side, we assume that bankruptcy courts may be biased for debtors or creditors, and subject to career concerns. On the demand side, we assume that debtors (and creditors) can engage in forum shopping at some cost. A key finding is that stronger creditor protection in reorganization improves judicial incentives to resolve financial distress efficiently, preventing a "race to the bottom" towards inefficient uses of judicial discretion. The comparative statics of our model shed light on a wealth of evidence on U.S. bankruptcy and yield novel predictions on how bankruptcy codes should affect firm-level outcomes.

Keywords: Judicial Discretion; Corporate Bankruptcy (search for similar items in EconPapers)
JEL-codes: G33 K22 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2008-04
New Economics Papers: this item is included in nep-cfn and nep-law
Note: This version: December 2007
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https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/29280/WP2008-5.pdf

Related works:
Journal Article: Judicial Discretion in Corporate Bankruptcy (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:hit:hitcei:2008-5

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