Bankruptcies, Bailouts, and Some Political Economy of Corporate Reorganization

30 Pages Posted: 22 Apr 2017

See all articles by Dylan J. DelliSanti

Dylan J. DelliSanti

George Mason University - Department of Economics

Richard E. Wagner

George Mason University - Department of Economics

Date Written: April 21, 2017

Abstract

Bankruptcy has long been the standard approach to reorganizing failing corporate entities. In recent years, bailout has appeared as an alternative option, whereby a governmental entity takes charge of the reorganization. At the macro or systemic level, there is a Coase-like invariance proposition at work in which a failing concern is replaced by a going concern under either process. In this respect, our analysis suggests that little is at stake in choosing between different points of reorganization. Either way, capital losses will be distributed within the society to restore solvency to the failing enterprise. Significant differences arise, however, once we move beyond the point of reorganization. The choice between bankruptcy and bailout is fundamentally a choice between alternative arrangements for corporate governance, and not about transforming failing concerns into going concerns because this will happen under either arrangement.

Keywords: bankruptcy; bailout; corporate restructuring; automobile bailout; entangled political economy

JEL Classification: D72, G33, H81

Suggested Citation

DelliSanti, Dylan J. and Wagner, Richard E., Bankruptcies, Bailouts, and Some Political Economy of Corporate Reorganization (April 21, 2017). GMU Working Paper in Economics No. 17-14. Available at SSRN: https://ssrn.com/abstract=2956439 or http://dx.doi.org/10.2139/ssrn.2956439

Dylan J. DelliSanti

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States

Richard E. Wagner (Contact Author)

George Mason University - Department of Economics ( email )

4400 University Drive
334 Enterprise Hall
Fairfax, VA 22030
United States
(703) 993-1132 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
121
Abstract Views
503
rank
230,257
PlumX Metrics