The Impact of Debtor-Friendly Reforms on the Performance of a Reorganization Procedure
52 Pages Posted: 18 May 2012
Date Written: January 3, 2012
Recent changes to Canadian bankruptcy law provide a natural experiment that we use to evaluate the impact of the international trend towards Chapter 11-style reorganization laws. Comparing random samples of reorganizing firms from before and after the law change show that changes to the law are associated with higher incentives for debtors to buy time prior to filing a proposal, a longer time in reorganization and a higher bankruptcy costs to assets ratio. The primary objective of the reform to attract more firms in reorganization has been met. The data also show that the system now attracts smaller and weaker firms although this has had very little impact on the acceptance rate and completion rate of reorganization plans.
Keywords: financial reorganization, bankruptcy law, economic efficiency
JEL Classification: G33, L11
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