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Whither the Race: A Comment on the Effects of the Delawarization of Corporate Reorganizations

33 Pages Posted: 3 May 2001 Last revised: 9 Oct 2017

Robert K. Rasmussen

University of Southern California Gould School of Law

Randall S. Thomas

Vanderbilt University - Law School; European Corporate Governance Institute (ECGI)

Abstract

Recent empirical work has demonstrated that large, publicly held firms tend to file for bankruptcy in Delaware. In our previous work, we have documented this trend, and argued that it may be efficient for prepackaged bankruptcies, while it unclear if it is efficient for traditional Chapter 11 cases. In this piece, we respond to LoPucki and Kalin's assertion that Delaware bankruptcy court performs worse than others. They base this claim on the observation that firms that file for bankruptcy in Delaware are more likely to file for bankruptcy a second time than are firms that file in another jurisdiction.

We demonstrate a number of problems with their analysis. These include that: they have failed to offer a robust definition of what constitutes a successful reorganization; they do not adequately justify focusing narrowly on refiling rates; and that a substantial number of firms drop out of their sample which may adversely affect their results. Moreover, contrary to their assumption, we also show that there may be an optimal refiling rate that is above zero. In any given case, there may be a trade off between resolving the case quickly and the risk of a subsequent filing. We conclude that, while their results are provocative, there remains much more work to be done before strong implications can be drawn from them.

JEL Classification: K, K2

Suggested Citation

Rasmussen, Robert K. and Thomas, Randall S., Whither the Race: A Comment on the Effects of the Delawarization of Corporate Reorganizations. Vanderbilt Law Review, Vol. 54. p. 283, 2001; Vanderbilt Law and Economics Research Paper No. 01-02. Available at SSRN: https://ssrn.com/abstract=267841 or http://dx.doi.org/10.2139/ssrn.267841

Robert K. Rasmussen (Contact Author)

University of Southern California Gould School of Law ( email )

699 Exposition Boulevard
Los Angeles, CA 90089-0071
United States
213-740-6473 (Phone)
213-740-5502 (Fax)

Randall S. Thomas

Vanderbilt University - Law School ( email )

131 21st Avenue South
Nashville, TN 37203-1181
United States

European Corporate Governance Institute (ECGI)

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

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