Measuring the Ex-ante Incentive Effects of Creditor Control Rights during Bankruptcy Reorganization

Ashwini Agrawal*, Juanita Gonzalez-Uribe, Jimmy Martínez-Correa

*Corresponding author for this work

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A large theoretical literature studies the effects of creditor control during bankruptcy proceedings on firm outcomes. Empirical work in this area mainly examines reforms to creditor control rights during liquidation. In this paper, we use administrative microdata and exploit a legal reform in Denmark to provide the first causal estimates of creditor empowerment in reorganization-the complementary bankruptcy procedure to liquidation. We find that the Danish reform led to a sharp decline in liquidations. Although few insolvent firms make use of the new reorganization procedures, we show that solvent firms improved their financial management and increased employment and investment. The findings illustrate the empirical importance of reorganization rules on the incentives of stakeholders outside of bankruptcy.
Original languageEnglish
JournalJournal of Financial Economics
Issue number1
Pages (from-to)381-408
Number of pages28
Publication statusPublished - Jan 2022

Bibliographical note

Published online: 24. September 2021


  • Bankruptcy
  • Reorganization
  • Liquidation
  • Creditors
  • Debtors

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