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Asset Allocation in Bankruptcy

Shai Bernstein, Emanuele Colonnelli and Ben Iverson

No 23305, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper investigates the consequences of liquidation and reorganization on the allocation and subsequent utilization of assets in bankruptcy. Using the random assignment of judges to bankruptcy cases as a natural experiment that forces some firms into liquidation, we find that the long-run utilization of assets of liquidated firms is lower relative to assets of reorganized firms. These effects are concentrated in thin markets with few potential users, and in areas with low access to finance. The results highlight the importance of local search frictions and financial frictions in affecting the allocation of assets in bankruptcy.

JEL-codes: G3 G33 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-law
Date: 2017-03
Note: CF
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Published as SHAI BERNSTEIN & EMANUELE COLONNELLI & BENJAMIN IVERSON, 2019. "Asset Allocation in Bankruptcy," The Journal of Finance, vol 74(1), pages 5-53.

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