A Study of Inefficent Going Concerns in Bankruptcy
- Topics:
- Bankruptcy,
- Commercial Lending
- Tags:
- Bankruptcy,
- Business Operations,
- Creditor,
- Litigation
- Source:
- London Business School
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Overview: Using Hungarian data, this paper provides the first large-scale study measuring the bias in favor of inefficient going concerns induced by court-administered bankruptcy procedures. The authors have found that the large majority of bankrupt firms in their sample are kept as going concerns, although the evidence suggests that they sharply reduce aggregate proceeds to pre-bankruptcy creditors. These results stem from bankruptcy law and practices that dilute rights of secured creditors, and provide the trustee managing the bankruptcy process with strong incentives to maintain a going concern. The bias in favor of going concerns encourages trade creditors to trigger bankruptcy, either to be bought out by secured creditors or to benefit from supplying the firm in bankruptcy.
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Format: PDF | Size: 108KB | Date: Jan 2004 | Pages: 41
