Lawyer Networks and Corporate Bankruptcies

Abstract

Exploiting a setting in which lead counsel lawyers are selected before the random assignment of bankruptcy judges, we examine if past interactions between lead counsel lawyers and judges influence corporate bankruptcy outcomes. Debtors' counsel who are familiar with the judge speed up the bankruptcy process---connected cases resolve 16% faster compared to otherwise similar cases with no connections. The most effective connections arise through previous clerkships and in-court interactions, and the effects concentrate in cases with smaller legal teams where connected lawyers have more influence. We find no evidence that connections lead to judge favoritism or pro-debtor biases. The results suggest that lawyers use knowledge of judges' judicial discretion to improve the efficiency of court processes.

Keywords: network, lawyers, Chapter 11, corporate bankruptcy, law firms

JEL Classification: G14, G15, G32