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Abstract:
This paper studies the effect of limited liability on corporate architecture. Corporate architecture is to be interpreted as the organizational instruments firms use to organize themselves into a coordinating, hierarchical ordered association of people. In this paper, it specifically refers to the use of four governance instruments within the firm to control the behavior of employees. These four are decision control rights, reward schemes, information systems and conflict resolution rules. Limited liability influences the way in which an incorporated group of firms employs each of these instruments. The most important effects are that limited liability makes it advantageous to allocate decision rights lower in the organization, use higher-powered reward schemes and economize on information systems. The effects lead to a saving of coordination costs within incorporated groups compared to unincorporated groups. Corporate groups thus differ in their governance arrangement from firms that have not organized in corporate groups. Alternatives that restrict limited liability have the effect of centralizing rights, flattening reward schemes and increasing investment in information systems. If corporate groups have attuned their architecture optimally, then restricting, or abolishing, limited liability generates additional coordination costs.

Limited liability, corporate law, organizational form

Abstract:
This paper studies the effect of limited liability on corporate architecture. Corporate architecture refers to the use of governance instruments within the firm to control the behavior of employees. Four general instruments are defined that form the basis of the firm as a governance arrangement. These four are decision control rights, reward schemes, information systems and conflict resolution rules. Limited liability influences the way in which an incorporated group of firms employs each of these instruments. An efficient use of the governance instruments in such a group implies that lower hierarchical levels, incorporated in subsidiaries, will have more discretionary decision rights, higher powered incentives and less information requirements than a group that does not organize its business risks in incorporated subsidiaries. Corporate groups thus differ in their governance arrangement from firms that have not organized in corporate groups. Alternatives that restrict limited liability have the effect of centralizing rights, flattening reward schemes and increasing investment in information systems. If corporate groups have attuned their architecture optimally, then restricting limited liability generates additional coordination costs.

Limited liability, Corporate Law, Organizational Form

Abstract:
We study the restructuring process of small and medium-sized firms in financial distress. We have a unique dataset with firms in the Netherlands that are assisted in their restructuring effort by banks. Part of our dataset consists of firms that successfully restructure their operations and obligations with the help of their bank. Another part consists of firms that, despite the assistance of their bank, did not succeed in reorganizing their operations and finances. Our empirical test predicts success and failure in restructuring. We find that banks play a role in the firms' restructuring efforts and that this assistance is of crucial importance to the success of the restructuring. We conclude that the harsh bankruptcy rules in the Netherlands support private negotiations between financially distressed firms and their banks.

bankruptcy, debt restructuring, financial distress, reorganization

Abstract:
We study the restructuring process of small and medium-sized firms in financial distress. We have a unique dataset with firms in the Netherlands that are guided in their restructuring effort by banks. Part of our dataset consists of firms that successfully restructure their operations and obligations with the help of their bank. Another part consists of firms that, despite the assistance of their bank, did not succeed in reorganizing their operations and finances. Our empirical test predicts success and failure in restructuring. We find that banks guide firms in their restructuring effort and that their assistance is of crucial importance to the success of the restructuring. However, some firms do not benefit from this assistance, because firms need to be prepared to undertake radical operational changes before bank assistance is forthcoming.

bankruptcy, debt restructuring, financial distress, reorganization

Abstract:
The greenhouse gas emissions trading scheme in the European Union primarily uses grandfathering until 2012, which means that polluters get emission rights free of charge based on their historical emissions. Energy consumers accuse energy producers of making windfall profits by incorporating the market value of those free rights into the energy prices. However, we develop a numerical example to illustrate that the reasoning of the producers is correct. We also explain why this market value is only partly passed on to consumers. We consider various measures and conclude that only auctioning the rights after 2012 nullifies the additional profits.

emissions trading, energy prices, windfall profits, opportunity costs, grandfathering, auctioning

Abstract:
Around the turn of the century, the gas market in the Netherlands underwent a drastic shift in governance. Although the gas value chain was initially designed as a natural monopoly, it was dismantled by introducing competition on the basis of two European Union (EU) Directives that allowed third party access. The key economic question is whether the ongoing legal process of liberalization will result in an overall efficiency gain. Although this is probably still too early to tell, we provide the preliminary answer, based on an evolutionary framework of market governance, that the efficiency gain is likely to be small. First, the transaction characteristics and market structure have not changed substantially to align them efficiently with the new governance arrangement. In the Netherlands, gas market governance basically shifted from public regulation 'in disguise' (as a private bilateral governance arrangement) to public regulation. Second, the potential efficiency gains are suppressed by path dependence and lock-in. For instance, the former monopolist in the Netherlands has a strong position on the wholesale market due to its historically determined exclusive entry to the huge Groningen gas field. Despite the liberalization of the market, transaction characteristics have not changed, which has prompted a strong intrusion of governance instruments by the regulatory agent. In that sense, we argue that the governance of the Dutch gas market has made a full circle.

Market governance, gas industry, legal change, path dependence, lock-in

Abstract:
We present evidence on the efficiency of the resolution of financial distress in bankruptcy in The Netherlands. We employ a unique data set based on the files of the trustees and court offices, which includes the characteristics of the firms before and in the bankruptcy procedures, the details of the bankruptcy process and the outcomes. This data allows us to measure the costs and recovery rates in the Dutch liquidation-based bankruptcy system, and to investigate the determinants of these costs and recoveries. We find that direct costs are on average 16%. The costs are lower in larger firms and firms with more bank debt. Costs increase with the time it takes to sell assets and the number of disputes the trustee has to deal with. The firm recovery rate is on average 37%, while the bank recovers on average 80%. The firm recovery rate is influenced by the asset structure and the capital structure. Moreover, an opportunity to continue operations in bankruptcy is chosen by about half the firms and this has a positive effect on recoveries.

Bankruptcy, Liquidation, Direct costs, Recovery rates

Abstract:
We present evidence on the efficiency of the resolution of financial distress in bankruptcy in The Netherlands. Direct costs average 16%, firm recovery 37% and bank debt recovery 80%. The direct costs are lower in larger firms and in firms with more bank debt. Costs increase with the time it takes to sell assets. Firm recovery is influenced by asset structure, capital structure and to a lesser extent Dutch legal variables. However, the opportunity to continue operations in bankruptcy is chosen by about half the firms and this has a positive effect on recoveries.

Bankruptcy, Liquidation, Direct costs, Recovery rates

Abstract:
We present evidence on the efficiency of the resolution of financial distress in bankruptcy in The Netherlands. We employ a unique data set based on the files of the trustees and court offices, which includes the characteristics of the firms before and in the bankruptcy procedures, the details of the bankruptcy process and the outcomes. This data allows us to measure the costs and recovery rates in the Dutch liquidation-based bankruptcy system, and to investigate the determinants of these costs and recoveries. We find that direct costs are on average 16%. The costs are lower in larger firms and firms with more bank debt. Costs increase with the time it takes to sell assets and the number of disputes the trustee has to deal with. The firm recovery rate is on average 37%, while the bank recovers on average 80%. The firm recovery rate is influenced by the asset structure and the capital structure. Moreover, an opportunity to continue operations in bankruptcy is chosen by about half the firms and this has a positive effect on recoveries.

Bankruptcy; Liquidation; Direct costs; Recovery rates

Abstract:
In this paper we adopt a new approach to the issue and contextualize the cost of chapter 11 by comparison to the costs of business bankruptcy in the Netherlands. Using unique data-sets that each author has developed in connection with other projects, we match a group of comparable cases from each jurisdiction. The results not only contextualize chapter 11 by reference to a comparable international economy, but also provide important comparative insights.

Most importantly, we find that "law matters." In particular, because the two jurisdictions consider the cost of corporate reorganization in different ways - chapter 11 includes almost all professional costs incurred during the case to be chapter 11 costs, whereas the Netherlands considers a narrower range of professionals - the difference in jurisdictions is initially the most important factor in explaining the cost of reorganization. We then account for these legal distinctions, and find that economic factors like the size of the debtor and the degree to which the firm's debts are secured explain most of the cost of corporate bankruptcy - irrespective of jurisdiction.

chapter 11, bankruptcy costs, direct costs, financial distress, Netherlands

Abstract:
Carbon Capture and Storage (CCS) is a new combination of technologies that may become available to firms that emit CO2 under the European Union’s emissions trading scheme (EU ETS). An example is an electricity producer that captures its CO2 and transports it to a depleted gas field where it is permanently stored. In the short term, CCS is more expensive than either buying emission rights on the market or reducing emissions within the firm itself. Therefore, the EU provides for substantial subsidies of several billions of euros to installations under the EU ETS that apply CCS. Although it is to be applauded that the EU has avoided several uneconomical alternatives, our analysis shows that these subsidies are inefficient. First, the EU ETS was created to let emitters choose the least-cost option to comply with their emission targets. Policymakers should not undermine this market by picking winners: the CO2 price should and can determine when CCS becomes attractive. Second, we question the design of the CCS subsidies. For instance, emission rights will be taken from the new entrants reserve to fund CCS projects, which creates a barrier to entry, and allowance auction revenues will be given to CCS users, whereas it is more efficient to use that money for reducing distortionary taxes (such as taxes on labour). Nevertheless, we find it economically reassuring that the EU restricts the subsidies both in scope and in time, which significantly limits the associated inefficiency.

carbon capture and storage, emissions trading, European Union, incentives, subsidies, auctioning

Abstract:
Extensive research on bankruptcy still has not made it possible to end the efficiency discussion concerning the need for a reorganization provision in bankruptcy laws. In this paper, I discuss the pervasiveness of asset sales in bankruptcy procedures and the effect it has on survival rates. Without these figures on going concern asset sales Western countries show astonishingly low firm survival rates. In addition, it becomes clear that the bankruptcy system in the US may be under-researched to such an extent that it seriously confounds our view of bankruptcy resolution.

bankruptcy, survival rate, asset sales, liquidation, reorganization