A Study of Inefficient Going Concerns in Bankruptcy

Topics:
Bankruptcies
Tags:
Bankruptcy,
Business Operations,
Concern,
Litigation,
University Of Cambridge
Source:
University of Cambridge

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Overview: This paper provides the first large-scale study measuring the bias in favour of going concerns induced by court-administered bankruptcy procedures. Although it is found that the large majority of bankrupt firms in the authors sample of Hungarian firms are kept as going concerns, the evidence suggests that the going concern bias sharply reduces aggregate proceeds to pre-bankruptcy creditors. The high costs are accompanied by the eventual closure and piecemeal sale of three quarters of going concerns. These results arise because of poor court oversight and the compensation scheme awarded to the court appointed trustee managing the bankrupt company.

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Format: PDF | Size: 116KB | Date: Apr 2005 | Pages: 46

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