Bankruptcy Law Differences Across Countries, Managerial Incentives and Firm Value

51 Pages Posted: 3 Sep 2003

See all articles by Vaughn S. Armstrong

Vaughn S. Armstrong

Brigham Young University

Leigh A. Riddick

American University - Kogod School of Business

Date Written: January 2003

Abstract

With a state preference model, we illustrate how differences in bankruptcy code across countries affect managerial incentives and firm value. We examine bankruptcy codes of the G-7 countries in some detail and tie differences to model outcomes. We substantiate the economic effect of these differences by contrasting outcomes of specific bankruptcies and with the pre-filing performance of bankrupt firms from different countries. We then use a constrained optimization model to show that code differences also affect managers of financially healthy firms. These code-induced incentives and empirical evidence raise implications for bankruptcy policies, financial research, and policies affecting economic growth.

Keywords: Financial Distress, Bankruptcy, International Bankruptcy Law, International Comparisons

JEL Classification: G33, G38, G30

Suggested Citation

Armstrong, Vaughn S. and Riddick, Leigh A., Bankruptcy Law Differences Across Countries, Managerial Incentives and Firm Value (January 2003). Available at SSRN: https://ssrn.com/abstract=420560 or http://dx.doi.org/10.2139/ssrn.420560

Vaughn S. Armstrong (Contact Author)

Brigham Young University ( email )

Provo, UT 84602
United States
801-422-8951 (Phone)
801-422-0108 (Fax)

Leigh A. Riddick

American University - Kogod School of Business ( email )

4400 Massachusetts Avenue NW
Washington, DC 20816-8044
United States
202.885.1944 (Phone)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
607
Abstract Views
2,224
rank
45,891
PlumX Metrics