Journal of Financial Economics Vol. 144 No. 2 2022
Do the right firms survive bankruptcy?
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.
- DOI
- 10.1016/j.jfineco.2021.07.006
- Volume
- 144
- Issue
- 2
- Pages
- 523-546
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref