Loading…
Optimal 'soft' or 'tough' bankruptcy procedures
This article describes optimal bankruptcy laws in a framework with asymmetric information. The key idea is that the financial distress of a firm is not observed by its lenders for quite a while. As early rescues are much cheaper than late rescues, it may pay if the creditors are forgiving in bankrup...
Saved in:
Published in: | Journal of law, economics, & organization economics, & organization, 1999-10, Vol.15 (3), p.659-684 |
---|---|
Main Author: | |
Format: | Article |
Language: | English |
Subjects: | |
Citations: | Items that cite this one |
Online Access: | Get full text |
Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
cited_by | cdi_FETCH-LOGICAL-c414t-4b05db563d0e584214b1b6c180353b967890512b5263e460327290cf3f7ebc4a3 |
---|---|
cites | |
container_end_page | 684 |
container_issue | 3 |
container_start_page | 659 |
container_title | Journal of law, economics, & organization |
container_volume | 15 |
creator | Povel, Paul |
description | This article describes optimal bankruptcy laws in a framework with asymmetric information. The key idea is that the financial distress of a firm is not observed by its lenders for quite a while. As early rescues are much cheaper than late rescues, it may pay if the creditors are forgiving in bankruptcy, thereby inducing the revelation of difficulties as early as possible. Either 'tough' or 'soft' bankruptcy laws can be optimal, depending on the parameters. This implies that mandatory one-size-fits-all bankruptcy procedures cannot be optimal. 'Hybrid' procedures, which try to combine elements of soft and tough procedures, are found to be redundant, and possibly harmful. Absolute priority rules may be helpful as a part of tough procedures, but their introduction is (partly) inconsistent with the design of soft procedures. The article also reinterprets much of the evidence on the performance of Chapter 11, the 'rather soft' U.S. reorganization procedure, questioning many negative conclusions. |
doi_str_mv | 10.1093/jleo/15.3.659 |
format | article |
fullrecord | <record><control><sourceid>jstor_proqu</sourceid><recordid>TN_cdi_proquest_miscellaneous_38810610</recordid><sourceformat>XML</sourceformat><sourcesystem>PC</sourcesystem><jstor_id>3555086</jstor_id><sourcerecordid>3555086</sourcerecordid><originalsourceid>FETCH-LOGICAL-c414t-4b05db563d0e584214b1b6c180353b967890512b5263e460327290cf3f7ebc4a3</originalsourceid><addsrcrecordid>eNpdkL1PwzAQxS0EEqUwsjFEDGRKa_v8kYyoAgqq1AWkisWKUweapnWwHYn-97gqKhK33HA_vXfvIXRN8IjgAsZNa-yY8BGMBC9O0IAwwTMJjJyiQS65yASl9BxdeN_gOAUUAzSed2G1Kdsk9bYOaWJdkgbbf3ymiS63a9d3odolnbOVWfbO-Et0VpetN1e_e4jeHh9eJ9NsNn96ntzPsooRFjKmMV9qLmCJDc8ZJUwTLSqSY-CgCyHzAnNCNacCDBMYqKQFrmqopdEVK2GI7g660fqrNz6ozcpXpm3LrbG9V5DnBAuCI3j7D2xs77bxN0XJ3kVKGqHsAFXOeu9MrToXU7udIljtu1P77hThClTsLvI3B77xwbojDJxznIs_uZUP5vt4Lt1aCQmSq-niXb1M8HQmFlhR-AEHBHfF</addsrcrecordid><sourcetype>Aggregation Database</sourcetype><iscdi>true</iscdi><recordtype>article</recordtype><pqid>218905772</pqid></control><display><type>article</type><title>Optimal 'soft' or 'tough' bankruptcy procedures</title><source>EconLit s plnými texty</source><source>EBSCOhost Business Source Ultimate</source><source>International Bibliography of the Social Sciences (IBSS)</source><source>Lexis Plus UK Journals</source><source>Oxford Journals Online</source><source>JSTOR</source><creator>Povel, Paul</creator><creatorcontrib>Povel, Paul</creatorcontrib><description>This article describes optimal bankruptcy laws in a framework with asymmetric information. The key idea is that the financial distress of a firm is not observed by its lenders for quite a while. As early rescues are much cheaper than late rescues, it may pay if the creditors are forgiving in bankruptcy, thereby inducing the revelation of difficulties as early as possible. Either 'tough' or 'soft' bankruptcy laws can be optimal, depending on the parameters. This implies that mandatory one-size-fits-all bankruptcy procedures cannot be optimal. 'Hybrid' procedures, which try to combine elements of soft and tough procedures, are found to be redundant, and possibly harmful. Absolute priority rules may be helpful as a part of tough procedures, but their introduction is (partly) inconsistent with the design of soft procedures. The article also reinterprets much of the evidence on the performance of Chapter 11, the 'rather soft' U.S. reorganization procedure, questioning many negative conclusions.</description><identifier>ISSN: 8756-6222</identifier><identifier>ISSN: 1465-7341</identifier><identifier>EISSN: 1465-7341</identifier><identifier>DOI: 10.1093/jleo/15.3.659</identifier><language>eng</language><publisher>Oxford: Oxford University Press</publisher><subject>Bankruptcy ; Bankruptcy Code ; Bankruptcy laws ; Bankruptcy procedures ; Bankruptcy reorganization ; Chapter 11 bankruptcy ; Contract incentives ; Contracts ; Costs ; Credit ; Creditors ; Debt ; Enterprises ; Entrepreneurs ; Finance ; Financial institutions ; Investors ; Law ; Lenders ; Return on investment ; Studies</subject><ispartof>Journal of law, economics, & organization, 1999-10, Vol.15 (3), p.659-684</ispartof><rights>Copyright 1999 Oxford University Press</rights><rights>Copyright Oxford University Press(England) Oct 1999</rights><lds50>peer_reviewed</lds50><woscitedreferencessubscribed>false</woscitedreferencessubscribed><citedby>FETCH-LOGICAL-c414t-4b05db563d0e584214b1b6c180353b967890512b5263e460327290cf3f7ebc4a3</citedby></display><links><openurl>$$Topenurl_article</openurl><openurlfulltext>$$Topenurlfull_article</openurlfulltext><thumbnail>$$Tsyndetics_thumb_exl</thumbnail><linktopdf>$$Uhttps://www.jstor.org/stable/pdf/3555086$$EPDF$$P50$$Gjstor$$H</linktopdf><linktohtml>$$Uhttps://www.jstor.org/stable/3555086$$EHTML$$P50$$Gjstor$$H</linktohtml><link.rule.ids>314,780,784,27922,27923,33221,33222,58236,58469</link.rule.ids></links><search><creatorcontrib>Povel, Paul</creatorcontrib><title>Optimal 'soft' or 'tough' bankruptcy procedures</title><title>Journal of law, economics, & organization</title><addtitle>JLEO</addtitle><description>This article describes optimal bankruptcy laws in a framework with asymmetric information. The key idea is that the financial distress of a firm is not observed by its lenders for quite a while. As early rescues are much cheaper than late rescues, it may pay if the creditors are forgiving in bankruptcy, thereby inducing the revelation of difficulties as early as possible. Either 'tough' or 'soft' bankruptcy laws can be optimal, depending on the parameters. This implies that mandatory one-size-fits-all bankruptcy procedures cannot be optimal. 'Hybrid' procedures, which try to combine elements of soft and tough procedures, are found to be redundant, and possibly harmful. Absolute priority rules may be helpful as a part of tough procedures, but their introduction is (partly) inconsistent with the design of soft procedures. The article also reinterprets much of the evidence on the performance of Chapter 11, the 'rather soft' U.S. reorganization procedure, questioning many negative conclusions.</description><subject>Bankruptcy</subject><subject>Bankruptcy Code</subject><subject>Bankruptcy laws</subject><subject>Bankruptcy procedures</subject><subject>Bankruptcy reorganization</subject><subject>Chapter 11 bankruptcy</subject><subject>Contract incentives</subject><subject>Contracts</subject><subject>Costs</subject><subject>Credit</subject><subject>Creditors</subject><subject>Debt</subject><subject>Enterprises</subject><subject>Entrepreneurs</subject><subject>Finance</subject><subject>Financial institutions</subject><subject>Investors</subject><subject>Law</subject><subject>Lenders</subject><subject>Return on investment</subject><subject>Studies</subject><issn>8756-6222</issn><issn>1465-7341</issn><issn>1465-7341</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>1999</creationdate><recordtype>article</recordtype><sourceid>8BJ</sourceid><recordid>eNpdkL1PwzAQxS0EEqUwsjFEDGRKa_v8kYyoAgqq1AWkisWKUweapnWwHYn-97gqKhK33HA_vXfvIXRN8IjgAsZNa-yY8BGMBC9O0IAwwTMJjJyiQS65yASl9BxdeN_gOAUUAzSed2G1Kdsk9bYOaWJdkgbbf3ymiS63a9d3odolnbOVWfbO-Et0VpetN1e_e4jeHh9eJ9NsNn96ntzPsooRFjKmMV9qLmCJDc8ZJUwTLSqSY-CgCyHzAnNCNacCDBMYqKQFrmqopdEVK2GI7g660fqrNz6ozcpXpm3LrbG9V5DnBAuCI3j7D2xs77bxN0XJ3kVKGqHsAFXOeu9MrToXU7udIljtu1P77hThClTsLvI3B77xwbojDJxznIs_uZUP5vt4Lt1aCQmSq-niXb1M8HQmFlhR-AEHBHfF</recordid><startdate>19991001</startdate><enddate>19991001</enddate><creator>Povel, Paul</creator><general>Oxford University Press</general><general>Oxford Publishing Limited (England)</general><scope>BSCLL</scope><scope>AAYXX</scope><scope>CITATION</scope><scope>8BJ</scope><scope>FQK</scope><scope>JBE</scope><scope>K7.</scope></search><sort><creationdate>19991001</creationdate><title>Optimal 'soft' or 'tough' bankruptcy procedures</title><author>Povel, Paul</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-c414t-4b05db563d0e584214b1b6c180353b967890512b5263e460327290cf3f7ebc4a3</frbrgroupid><rsrctype>articles</rsrctype><prefilter>articles</prefilter><language>eng</language><creationdate>1999</creationdate><topic>Bankruptcy</topic><topic>Bankruptcy Code</topic><topic>Bankruptcy laws</topic><topic>Bankruptcy procedures</topic><topic>Bankruptcy reorganization</topic><topic>Chapter 11 bankruptcy</topic><topic>Contract incentives</topic><topic>Contracts</topic><topic>Costs</topic><topic>Credit</topic><topic>Creditors</topic><topic>Debt</topic><topic>Enterprises</topic><topic>Entrepreneurs</topic><topic>Finance</topic><topic>Financial institutions</topic><topic>Investors</topic><topic>Law</topic><topic>Lenders</topic><topic>Return on investment</topic><topic>Studies</topic><toplevel>peer_reviewed</toplevel><toplevel>online_resources</toplevel><creatorcontrib>Povel, Paul</creatorcontrib><collection>Istex</collection><collection>CrossRef</collection><collection>International Bibliography of the Social Sciences (IBSS)</collection><collection>International Bibliography of the Social Sciences</collection><collection>International Bibliography of the Social Sciences</collection><collection>ProQuest Criminal Justice (Alumni)</collection><jtitle>Journal of law, economics, & organization</jtitle></facets><delivery><delcategory>Remote Search Resource</delcategory><fulltext>fulltext</fulltext></delivery><addata><au>Povel, Paul</au><format>journal</format><genre>article</genre><ristype>JOUR</ristype><atitle>Optimal 'soft' or 'tough' bankruptcy procedures</atitle><jtitle>Journal of law, economics, & organization</jtitle><addtitle>JLEO</addtitle><date>1999-10-01</date><risdate>1999</risdate><volume>15</volume><issue>3</issue><spage>659</spage><epage>684</epage><pages>659-684</pages><issn>8756-6222</issn><issn>1465-7341</issn><eissn>1465-7341</eissn><abstract>This article describes optimal bankruptcy laws in a framework with asymmetric information. The key idea is that the financial distress of a firm is not observed by its lenders for quite a while. As early rescues are much cheaper than late rescues, it may pay if the creditors are forgiving in bankruptcy, thereby inducing the revelation of difficulties as early as possible. Either 'tough' or 'soft' bankruptcy laws can be optimal, depending on the parameters. This implies that mandatory one-size-fits-all bankruptcy procedures cannot be optimal. 'Hybrid' procedures, which try to combine elements of soft and tough procedures, are found to be redundant, and possibly harmful. Absolute priority rules may be helpful as a part of tough procedures, but their introduction is (partly) inconsistent with the design of soft procedures. The article also reinterprets much of the evidence on the performance of Chapter 11, the 'rather soft' U.S. reorganization procedure, questioning many negative conclusions.</abstract><cop>Oxford</cop><pub>Oxford University Press</pub><doi>10.1093/jleo/15.3.659</doi><tpages>26</tpages></addata></record> |
fulltext | fulltext |
identifier | ISSN: 8756-6222 |
ispartof | Journal of law, economics, & organization, 1999-10, Vol.15 (3), p.659-684 |
issn | 8756-6222 1465-7341 1465-7341 |
language | eng |
recordid | cdi_proquest_miscellaneous_38810610 |
source | EconLit s plnými texty; EBSCOhost Business Source Ultimate; International Bibliography of the Social Sciences (IBSS); Lexis Plus UK Journals; Oxford Journals Online; JSTOR |
subjects | Bankruptcy Bankruptcy Code Bankruptcy laws Bankruptcy procedures Bankruptcy reorganization Chapter 11 bankruptcy Contract incentives Contracts Costs Credit Creditors Debt Enterprises Entrepreneurs Finance Financial institutions Investors Law Lenders Return on investment Studies |
title | Optimal 'soft' or 'tough' bankruptcy procedures |
url | http://sfxeu10.hosted.exlibrisgroup.com/loughborough?ctx_ver=Z39.88-2004&ctx_enc=info:ofi/enc:UTF-8&ctx_tim=2025-01-09T20%3A56%3A21IST&url_ver=Z39.88-2004&url_ctx_fmt=infofi/fmt:kev:mtx:ctx&rfr_id=info:sid/primo.exlibrisgroup.com:primo3-Article-jstor_proqu&rft_val_fmt=info:ofi/fmt:kev:mtx:journal&rft.genre=article&rft.atitle=Optimal%20'soft'%20or%20'tough'%20bankruptcy%20procedures&rft.jtitle=Journal%20of%20law,%20economics,%20&%20organization&rft.au=Povel,%20Paul&rft.date=1999-10-01&rft.volume=15&rft.issue=3&rft.spage=659&rft.epage=684&rft.pages=659-684&rft.issn=8756-6222&rft.eissn=1465-7341&rft_id=info:doi/10.1093/jleo/15.3.659&rft_dat=%3Cjstor_proqu%3E3555086%3C/jstor_proqu%3E%3Cgrp_id%3Ecdi_FETCH-LOGICAL-c414t-4b05db563d0e584214b1b6c180353b967890512b5263e460327290cf3f7ebc4a3%3C/grp_id%3E%3Coa%3E%3C/oa%3E%3Curl%3E%3C/url%3E&rft_id=info:oai/&rft_pqid=218905772&rft_id=info:pmid/&rft_jstor_id=3555086&rfr_iscdi=true |