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Economic Effects of Auction Bankruptcy

35 Pages Posted: 16 Apr 2009 Last revised: 27 Apr 2009

B. Espen Eckbo

Tuck School of Business at Dartmouth; European Corporate Governance Institute (ECGI)

Karin S. Thorburn

Norwegian School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Date Written: April 16, 2009

Abstract

We survey empirical research on the Swedish auction bankruptcy system, which requires that filing firms are put up for sale in an auction. The bids determine whether the firm will be liquidated piecemeal or continued as a going concern. The auctions are competitive and there is little evidence of fire-sales. Three-quarters of the firms survive the auction with their core assets intact. In contrast to evidence on reorganizations under Chapter 11 in the U.S., buyers in Sweden restructure the auctioned firms well enough for these firms to perform at par with industry rivals. The CEOs of auctioned firms suffer dramatic personal bankruptcy costs. Nevertheless, there is no indication that this results in value-destroying risk shifting behaviour prior to filing. Overall, the Swedish experience suggests that greater reliance on the auction mechanism, seen recently also in the U.S., enhances economic efficiency.

Keywords: Bankruptcy, auction, reorganization, liquidation, risk-shifting, asset substitution, fire-sale, bankruptcy costs

JEL Classification: G33, G34, K22

Suggested Citation

Eckbo, B. Espen and Thorburn, Karin S., Economic Effects of Auction Bankruptcy (April 16, 2009). Tuck School of Business Working Paper No. 2009-63. Available at SSRN: https://ssrn.com/abstract=1387347 or http://dx.doi.org/10.2139/ssrn.1387347

B. Espen Eckbo (Contact Author)

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States
603-646-3953 (Phone)
603-646-3805 (Fax)

HOME PAGE: http://www.tuck.dartmouth.edu/eckbo

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Karin S. Thorburn

Norwegian School of Economics ( email )

Helleveien 30
N-5045 Bergen
Norway
+4755959283 (Phone)

HOME PAGE: http://www.nhh.no/cv/thorburn

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

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