Empirical Estimates of Filtering Failure in Court-Supervized Reorganization
25 Pages Posted: 15 Dec 1999
Date Written: August 1999
We present the first comprehensive empirical estimates of filtering failure in a bankruptcy system. Using a sample of 303 firms attempting reorganization in Canada during 1977-88, we find that Type I errors (accepting a plan from a non-viable firm) are 4 times more likely to occur than Type II errors (rejecting a plan from a viable firm) and that the incidence of filtering failure is between 22 and 53 percent. Preliminary estimates using Jensen-Conklin data indicate that filtering failure under Chapter 11 is much higher than under Canadian law, and, interestingly, that Type II errors are much more likely than Type I errors in Chapter 11.
JEL Classification: G33, G38
Suggested Citation: Suggested Citation