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Behavioral Finance and Asset Valuation in Insolvency Proceedings

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  • Roman Čibera
  • Tomáš Krabec

Abstract

In this article, we confront the results of the expert valuation of assets, followed by the realities of the prices achieved in the realization of assets in insolvency proceedings in the Czech Republic. Based on our findings we come to the conclusion that the expert's estimate of the value, respectively the usual price defined by the Czech law, the average discrepancy from the actual prices could be achieved by more than 30 percent in both directions under the circumstances that the estate was converted into cash within bankruptcy under a single contract. This difference is considered to be essential and we follow to provide possible explanation of the causes, which include poor choice of basis of value in relation to the actual purpose of valuation, qualitative change in the assets in the period from the moment of valuation until realization, information asymmetry and opportunity costs on the part of the insolvency administrator, behavior and the nature of investors operating in the field of insolvency, quality of expert appraisal and "negative goodwill" of insolvency.

Suggested Citation

  • Roman Čibera & Tomáš Krabec, 2016. "Behavioral Finance and Asset Valuation in Insolvency Proceedings," Ekonomika a Management, Prague University of Economics and Business, vol. 2016(1).
  • Handle: RePEc:prg:jnleam:v:2016:y:2016:i:1:id:264
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    References listed on IDEAS

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    1. Silke Hüttel & Simon Jetzinger & Martin Odening, 2014. "Forced Sales and Farmland Prices," Land Economics, University of Wisconsin Press, vol. 90(3), pages 395-410.
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    3. Ondřej Machek, 2014. "Long-term Predictive Ability of Bankruptcy Models in the Czech Republic: Evidence from 2007-2012," Central European Business Review, Prague University of Economics and Business, vol. 2014(2), pages 14-17.
    4. Alexander Dilger, 2006. "Forced to make mistakes: Reasons for complaining about Bebchuk's scheme and other market-oriented insolvency procedures," European Journal of Law and Economics, Springer, vol. 21(1), pages 79-94, January.
    5. Gilson, Stuart C & Hotchkiss, Edith S & Ruback, Richard S, 2000. "Valuation of Bankrupt Firms," The Review of Financial Studies, Society for Financial Studies, vol. 13(1), pages 43-74.
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    More about this item

    Keywords

    insolvency; insolvence; Evaluation; Valuation in the insolvency; Oceňování v insolvenci; Oceňování majetku;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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