Bankruptcy Reforms When Workers Extract Rents

Peri, Alessandro

doi:10.2139/ssrn.2833669

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Bankruptcy Reforms When Workers Extract Rents

74 Pages Posted: 6 Dec 2016 Last revised: 10 Nov 2020

See all articles by Alessandro Peri

Alessandro Peri

University of Colorado Boulder

Date Written: November 11, 2015

Abstract

Firms file for reorganization bankruptcy (Chapter 11) to restructure, not only debt, but also, labor contracts. In this environment, pro-creditor bankruptcy reforms face a trade-off: they increase recovery values of successful reorganizations but suffocate managers’ incentives to restructure labor contracts. Accordingly, reorganizations are more likely to fail, causing the inefficient liquidation of firms. I discipline the theory in the U.S. data by exploiting a creditor-friendly reform in 2001 and heterogeneity in right-to-work labor laws. I then estimate a dynamic model to assess the macroeconomic and firms’ financing implications of the 2001-reform.

Keywords: Corporate Bankruptcy; Restructuring; Firm Dynamics; General Equilibrium; Labor Contracts; Creditor Rights.

JEL Classification: G00, G33, G34, J30, J50, K39, D21, C68

Suggested Citation: Suggested Citation

Peri, Alessandro, Bankruptcy Reforms When Workers Extract Rents (November 11, 2015). Available at SSRN: https://ssrn.com/abstract=2833669 or http://dx.doi.org/10.2139/ssrn.2833669