The Law and Economics of Investing in Bankruptcy in the United States

33 Pages Posted: 24 Apr 2020 Last revised: 2 Jun 2020

See all articles by Jared A. Ellias

Jared A. Ellias

University of California, Hastings

Date Written: February 10, 2020

Abstract

Claims trading has become a significant and controversial feature of American bankruptcy practice over the past thirty years. This Report chronicles the rise of claims trading in the second decade of the Bankruptcy Reform Act of 1978 and analyzes the various policy concerns it raises. Most importantly, claims trade has led to, and been accelerated by, the development of an industry of specialized distressed investors who raise billions of dollars of capital to buy and sell the claims of Chapter 11 debtors. Despite attracting periodic concerns from policy-makers, the legal institutions of Chapter 11 appear to have mostly proven capable of handling the concerns raised by claims trading. In sum, the best interpretation of the available empirical evidence is that claims trading and activist investing has, at the very least, not harmed Chapter 11 or distressed corporations and may have actually improved the capacity of the American bankruptcy system to reorganize distressed assets.

Keywords: bankruptcy; activist investors; corporate governance; restructuring; corporate finance

JEL Classification: K22; G33

Suggested Citation

Ellias, Jared A., The Law and Economics of Investing in Bankruptcy in the United States (February 10, 2020). Available at SSRN: https://ssrn.com/abstract=3578170 or http://dx.doi.org/10.2139/ssrn.3578170

Jared A. Ellias (Contact Author)

University of California, Hastings ( email )

200 McAllister Street
San Francisco, CA 94102
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
511
Abstract Views
2,022
rank
61,621
PlumX Metrics