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

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

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
Pages (from-to)1-28
Number of pages28
ISSN0304-405X
DOIs
Publication statusPublished - 24 Sep 2021

Bibliographical note

Epub ahead of print. Published online: 24. September 2021

Keywords

  • Bankruptcy
  • Reorganization
  • Liquidation
  • Creditors
  • Debtors

Cite this