Judicial Discretion in Corporate Bankruptcy
47 Pages Posted: 4 Dec 2007 Last revised: 21 Jan 2009
There are 2 versions of this paper
Judicial Discretion in Corporate Bankruptcy
Judicial Discretion in Corporate Bankruptcy
Date Written: January 19, 2009
Abstract
We study a demand and supply model of judicial discretion in corporate bankruptcy. On the supply side, we assume that bankruptcy courts may be biased for debtors or creditors, and subject to career concerns. On the demand side, we assume that debtors (and creditors) can engage in forum shopping at some cost. A key finding is that stronger creditor protection in reorganization improves judicial incentives to resolve financial distress efficiently, preventing a "race to the bottom" towards inefficient uses of judicial discretion. The comparative statics of our model shed light on a wealth of evidence on U.S. bankruptcy and yield novel predictions on how bankruptcy codes should affect firm-level outcomes.
Keywords: Judicial Discretion, Corporate Bankruptcy
JEL Classification: G33, K22
Suggested Citation: Suggested Citation
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