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Do the right firms survive bankruptcy?

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  • Antill, Samuel
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.

Suggested Citation

  • Antill, Samuel, 2022. "Do the right firms survive bankruptcy?," Journal of Financial Economics, Elsevier, vol. 144(2), pages 523-546.
    • Handle: RePEc:eee:jfinec:v:144:y:2022:i:2:p:523-546
    DOI: 10.1016/j.jfineco.2021.07.006
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    References listed on IDEAS

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    Cited by:

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    2. Kim, Hwa-Sung, 2023. "Forced conversion to Chapter 7 bankruptcy and optimal financial decisions," Finance Research Letters, Elsevier, vol. 54(C).
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    4. Martin Kornejew & Chen Lian & Yueran Ma & Pablo Ottonello & Diego J. Perez, 2024. "Bankruptcy Resolution and Credit Cycles," NBER Chapters, in: NBER Macroeconomics Annual 2024, volume 39, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    Bankruptcy; Recovery rate; Structural estimation; Roy model; 363 sales;
    All these keywords.

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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