Empirical Evidence on the Efficiency Cost of a Debtor-Friendly Bankruptcy System

43 Pages Posted: 5 Jul 2007 Last revised: 5 Oct 2011

See all articles by Timothy C. G. Fisher

Timothy C. G. Fisher

University of Sydney, School of Economics

Jocelyn Martel

ESSEC Business School

Date Written: July 1, 2008

Abstract

A 1992 change to the Canadian Law provides a natural experiment that can be used to evaluate the economic efficiency of a debtor-friendly bankruptcy regime like Chapter 11. Using two waves of data on firms attempting reorganization before and after the law change, we find that the more recent debtor-friendly law has resulted in a higher probability of failure, a longer time in reorganization and sharply rising costs to unsecured creditors. In particular, we find that an "exclusivity period" given to debtors in the new law - hitherto unavailable under Canadian law and a often criticized feature of Chapter 11 - plays an important role.

Keywords: economic efficiency, bankruptcy costs, reorganization, Chapter 11

JEL Classification: G33, L11

Suggested Citation

Fisher, Timothy C. G. and Martel, Jocelyn, Empirical Evidence on the Efficiency Cost of a Debtor-Friendly Bankruptcy System (July 1, 2008). Available at SSRN: https://ssrn.com/abstract=998496 or http://dx.doi.org/10.2139/ssrn.998496

Timothy C. G. Fisher

University of Sydney, School of Economics ( email )

Sydney
Australia

Jocelyn Martel (Contact Author)

ESSEC Business School ( email )

Avenue Bernard Hirsch B.P. 50105
Cergy-Pontoise, 95021
France
33 1 34 43 33 21 (Phone)

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