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The impact of institutionalized representation: creditors' committees and the resolution of corporate liquidation bankruptcies

Author

Listed:
  • Jaka Cepec

    (University of Ljubljana)

  • Peter Grajzl

    (Washington and Lee University
    CESifo)

  • Barbara Mörec

    (University of Ljubljana)

Abstract

We utilize micro-level data on corporate liquidation bankruptcies in Slovenia to conduct the first systematic quantitative investigation of the impact of creditors' committees (CCs) on liquidation bankruptcy outcomes. Slovenian law permits, but does not mandate, the establishment of a CC in liquidation bankruptcy proceedings, ensuring variation in CC incidence across cases. To address the non-random formation of CCs, we use propensity score matching and employ a rich set of covariates. Our findings reveal that CCs boost the liquidation value of bankrupt debtors' assets, thereby facilitating recovery, particularly for priority and ordinary unsecured creditors. Additionally, CCs elevate the overall rate of creditors' recovery relative to the value of liquidated assets. However, CCs also prolong the duration of proceedings and increase the likelihood of litigation. Our analysis thus underscores the multifaceted nature of the effect of institutionalized creditor representation on the efficacy of liquidation bankruptcy proceedings.

Suggested Citation

  • Jaka Cepec & Peter Grajzl & Barbara Mörec, 2024. "The impact of institutionalized representation: creditors' committees and the resolution of corporate liquidation bankruptcies," European Journal of Law and Economics, Springer, vol. 58(3), pages 397-425, December.
    • Handle: RePEc:kap:ejlwec:v:58:y:2024:i:3:d:10.1007_s10657-024-09823-x
    DOI: 10.1007/s10657-024-09823-x
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    More about this item

    Keywords

    Corporate bankruptcy; Liquidation bankruptcy proceedings; Creditors' committees; Debt recovery; Duration; Slovenia;
    All these keywords.

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • P12 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Enterprises
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact

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