IDEAS home Printed from https://ideas.repec.org/a/wly/empleg/v2y2005i1p151-169.html
   My bibliography  Save this article

The Irrelevance of Direct Bankruptcy Costs to the Firm's Financial Reorganization Decision

Author

Listed:
  • Timothy C. G. Fisher
  • Jocelyn Martel

Abstract

We estimate the costs of reorganization and liquidation using firm‐level data on 622 commercial bankruptcies filed under Canadian law (324 liquidating firms and 298 reorganizing firms). Using a hedonic pricing model of bankruptcy costs, we find the costs of liquidation and reorganization depend on firm size, the complexity of the case, and the ability of the bankrupt firm to pay. The central finding is that, contrary to theory, 40 percent of the firms opted either for reorganization or liquidation even though it was more expensive. We conclude that rational firms must base their bankruptcy decision on factors other than direct bankruptcy costs.

Suggested Citation

  • Timothy C. G. Fisher & Jocelyn Martel, 2005. "The Irrelevance of Direct Bankruptcy Costs to the Firm's Financial Reorganization Decision," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 2(1), pages 151-169, March.
    • Handle: RePEc:wly:empleg:v:2:y:2005:i:1:p:151-169
    DOI: 10.1111/j.1740-1461.2005.00034.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1740-1461.2005.00034.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1740-1461.2005.00034.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lynn M. LoPucki & Joseph W. Doherty, 2008. "Professional Overcharging in Large Bankruptcy Reorganization Cases," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 5(4), pages 983-1017, December.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:empleg:v:2:y:2005:i:1:p:151-169. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://doi.org/10.1111/(ISSN)1740-1461 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.