Can Bankruptcy Codes Create Value? Evidence from Creditors’ Recoveries Infrance, Germany, and the UK

Abstract

This paper provides new evidence on the value creation of bankruptcy procedures that belong to different legal systems (French civil law, German civil law, and British common law). To do so, we assess to which extent the debtor’s value can be preserved under bankruptcy by analyzing the recovery rates in France, Germany, and the United Kingdom. We use a unique sample of 900 hand-collected corporate bankruptcy files.We find that France and Germany show quite similar overall recovery rates which are greater than in the UK. However,when controlling for the quality of assets and for the structure of claims, we observe that recovery rates are not significantly different between France and the UK, while they remain greater in Germany. We further show that there are significant differences in terms of recoveries between procedures within countries. Finally, we observe that the recovery rates of the different classes of claimants also significantly differ across countries and procedures. These results show that bankruptcy codes are not equivalent in the way they manage and realize the debtor’s assets and protect the various claimants.

Keywords: Law and Finance, Bankruptcy Law, Recovery rates

JEL Classification: G33