Do Reorganization Costs Matter for Efficiency? Evidence from a Bankruptcy Reform in Colombia
The authors study the effect of reorganization costs on the efficiency of bankruptcy laws. They develop a simple model that predicts that in a regime with high costs, the law fails to achieve the efficient outcome of liquidating unviable businesses and reorganizing viable ones. The authors test the model using the Colombian bankruptcy reform of 1999. Using data from 1,924 firms filing for bankruptcy between 1996 and 2003, they find that the pre-reform reorganization proceeding was so inefficient that it failed to separate economically viable firms from inefficient ones. In contrast, by substantially lowering reorganization costs, the reform improved the selection of viable firms into reorganization. In this sense, the new law increased the efficiency of the bankruptcy system in Colombia.
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Bibliographic Details
| Main Authors: |
Love, Inessa,
Giné, Xavier |
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| Language: | English |
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| Published: |
World Bank, Washington, DC
2006-07
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| Subjects: | ACCOUNTING,
BANKRUPTCY,
BANKRUPTCY CASES,
BANKRUPTCY CODES,
BANKRUPTCY FILINGS,
BANKRUPTCY LAW,
BANKRUPTCY LAWS,
BANKRUPTCY PROCEEDINGS,
BANKS,
BOOK VALUE,
BRANCHES,
CONFLICTS OF INTEREST,
COUNTRY COMPARISONS,
CURRENT ASSETS,
DEBT,
ECONOMETRIC MODELS,
EXPECTED RETURN,
FINANCIAL CRISIS,
FINANCIAL DATA,
FINANCIAL STATEMENTS,
FIRM PERFORMANCE,
FIRM SIZE,
ILLIQUIDITY,
INDIRECT COST,
INITIAL FILING,
LAW FIRMS,
LIMITED,
LIQUIDATION,
LIQUIDATION VALUE,
LIQUIDATIONS,
MACROECONOMIC CONDITIONS,
MANAGERS,
PROBABILITY MODELS,
PROXY,
PUBLIC CORPORATIONS,
PUBLIC FIRMS,
REGRESSION ANALYSIS,
REORGANIZATION,
REORGANIZATION PLAN,
REORGANIZATION PLANS,
REORGANIZATIONS,
RETAINED EARNINGS,
RETURN ON ASSETS,
SMALL FIRMS,
STOCK EXCHANGE,
STOCK MARKET,
TOTAL COSTS,
TRANSACTION COSTS,
VARIABLE COSTS,
WAGES,
WORKING CAPITAL, |
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| Online Access: | http://documents.worldbank.org/curated/en/2006/07/6938466/reorganization-costs-matter-efficiency-evidence-bankruptcy-reform-colombia
https://hdl.handle.net/10986/8375
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