Do Reorganization Costs Matter for Efficiency? Evidence from a Bankruptcy Reform in Colombia

The authors study the effect of reorganization costs on the efficiency of bankruptcy laws. They develop a simple model that predicts that in a regime with high costs, the law fails to achieve the efficient outcome of liquidating unviable businesses and reorganizing viable ones. The authors test the...

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Main Authors:	Giné, Xavier, Love, Inessa
Format:	Policy Research Working Paper
Language:	English
Published:	World Bank, Washington, DC 2012
Subjects:	ACCOUNTING BANKRUPTCY BANKRUPTCY CASES BANKRUPTCY CODES BANKRUPTCY FILINGS BANKRUPTCY LAW BANKRUPTCY LAWS BANKRUPTCY PROCEEDINGS BANKS BOOK VALUE BRANCHES CONFLICTS OF INTEREST COUNTRY COMPARISONS CURRENT ASSETS DEBT ECONOMETRIC MODELS EXPECTED RETURN FINANCIAL CRISIS FINANCIAL DATA FINANCIAL STATEMENTS FIRM PERFORMANCE FIRM SIZE ILLIQUIDITY INDIRECT COST INITIAL FILING LAW FIRMS LIMITED LIQUIDATION LIQUIDATION VALUE LIQUIDATIONS MACROECONOMIC CONDITIONS MANAGERS PROBABILITY MODELS PROXY PUBLIC CORPORATIONS PUBLIC FIRMS REGRESSION ANALYSIS REORGANIZATION REORGANIZATION PLAN REORGANIZATION PLANS REORGANIZATIONS RETAINED EARNINGS RETURN ON ASSETS SMALL FIRMS STOCK EXCHANGE STOCK MARKET TOTAL COSTS TRANSACTION COSTS VARIABLE COSTS WAGES WORKING CAPITAL
Online Access:	http://documents.worldbank.org/curated/en/2006/07/6938466/reorganization-costs-matter-efficiency-evidence-bankruptcy-reform-colombia http://hdl.handle.net/10986/8375

id	okr-10986-8375
recordtype	oai_dc
spelling	okr-10986-83752021-04-23T14:02:41Z Do Reorganization Costs Matter for Efficiency? Evidence from a Bankruptcy Reform in Colombia Giné, Xavier Love, Inessa ACCOUNTING BANKRUPTCY BANKRUPTCY CASES BANKRUPTCY CODES BANKRUPTCY FILINGS BANKRUPTCY LAW BANKRUPTCY LAWS BANKRUPTCY PROCEEDINGS BANKS BOOK VALUE BRANCHES CONFLICTS OF INTEREST COUNTRY COMPARISONS CURRENT ASSETS DEBT ECONOMETRIC MODELS EXPECTED RETURN FINANCIAL CRISIS FINANCIAL DATA FINANCIAL STATEMENTS FIRM PERFORMANCE FIRM SIZE ILLIQUIDITY INDIRECT COST INITIAL FILING LAW FIRMS LIMITED LIQUIDATION LIQUIDATION VALUE LIQUIDATIONS MACROECONOMIC CONDITIONS MANAGERS PROBABILITY MODELS PROXY PUBLIC CORPORATIONS PUBLIC FIRMS REGRESSION ANALYSIS REORGANIZATION REORGANIZATION PLAN REORGANIZATION PLANS REORGANIZATIONS RETAINED EARNINGS RETURN ON ASSETS SMALL FIRMS STOCK EXCHANGE STOCK MARKET TOTAL COSTS TRANSACTION COSTS VARIABLE COSTS WAGES WORKING CAPITAL The authors study the effect of reorganization costs on the efficiency of bankruptcy laws. They develop a simple model that predicts that in a regime with high costs, the law fails to achieve the efficient outcome of liquidating unviable businesses and reorganizing viable ones. The authors test the model using the Colombian bankruptcy reform of 1999. Using data from 1,924 firms filing for bankruptcy between 1996 and 2003, they find that the pre-reform reorganization proceeding was so inefficient that it failed to separate economically viable firms from inefficient ones. In contrast, by substantially lowering reorganization costs, the reform improved the selection of viable firms into reorganization. In this sense, the new law increased the efficiency of the bankruptcy system in Colombia. 2012-06-18T21:52:24Z 2012-06-18T21:52:24Z 2006-07 http://documents.worldbank.org/curated/en/2006/07/6938466/reorganization-costs-matter-efficiency-evidence-bankruptcy-reform-colombia http://hdl.handle.net/10986/8375 English Policy Research Working Paper; No. 3970 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research Latin America & Caribbean Colombia
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	ACCOUNTING BANKRUPTCY BANKRUPTCY CASES BANKRUPTCY CODES BANKRUPTCY FILINGS BANKRUPTCY LAW BANKRUPTCY LAWS BANKRUPTCY PROCEEDINGS BANKS BOOK VALUE BRANCHES CONFLICTS OF INTEREST COUNTRY COMPARISONS CURRENT ASSETS DEBT ECONOMETRIC MODELS EXPECTED RETURN FINANCIAL CRISIS FINANCIAL DATA FINANCIAL STATEMENTS FIRM PERFORMANCE FIRM SIZE ILLIQUIDITY INDIRECT COST INITIAL FILING LAW FIRMS LIMITED LIQUIDATION LIQUIDATION VALUE LIQUIDATIONS MACROECONOMIC CONDITIONS MANAGERS PROBABILITY MODELS PROXY PUBLIC CORPORATIONS PUBLIC FIRMS REGRESSION ANALYSIS REORGANIZATION REORGANIZATION PLAN REORGANIZATION PLANS REORGANIZATIONS RETAINED EARNINGS RETURN ON ASSETS SMALL FIRMS STOCK EXCHANGE STOCK MARKET TOTAL COSTS TRANSACTION COSTS VARIABLE COSTS WAGES WORKING CAPITAL
spellingShingle	ACCOUNTING BANKRUPTCY BANKRUPTCY CASES BANKRUPTCY CODES BANKRUPTCY FILINGS BANKRUPTCY LAW BANKRUPTCY LAWS BANKRUPTCY PROCEEDINGS BANKS BOOK VALUE BRANCHES CONFLICTS OF INTEREST COUNTRY COMPARISONS CURRENT ASSETS DEBT ECONOMETRIC MODELS EXPECTED RETURN FINANCIAL CRISIS FINANCIAL DATA FINANCIAL STATEMENTS FIRM PERFORMANCE FIRM SIZE ILLIQUIDITY INDIRECT COST INITIAL FILING LAW FIRMS LIMITED LIQUIDATION LIQUIDATION VALUE LIQUIDATIONS MACROECONOMIC CONDITIONS MANAGERS PROBABILITY MODELS PROXY PUBLIC CORPORATIONS PUBLIC FIRMS REGRESSION ANALYSIS REORGANIZATION REORGANIZATION PLAN REORGANIZATION PLANS REORGANIZATIONS RETAINED EARNINGS RETURN ON ASSETS SMALL FIRMS STOCK EXCHANGE STOCK MARKET TOTAL COSTS TRANSACTION COSTS VARIABLE COSTS WAGES WORKING CAPITAL Giné, Xavier Love, Inessa Do Reorganization Costs Matter for Efficiency? Evidence from a Bankruptcy Reform in Colombia
geographic_facet	Latin America & Caribbean Colombia
relation	Policy Research Working Paper; No. 3970
description	The authors study the effect of reorganization costs on the efficiency of bankruptcy laws. They develop a simple model that predicts that in a regime with high costs, the law fails to achieve the efficient outcome of liquidating unviable businesses and reorganizing viable ones. The authors test the model using the Colombian bankruptcy reform of 1999. Using data from 1,924 firms filing for bankruptcy between 1996 and 2003, they find that the pre-reform reorganization proceeding was so inefficient that it failed to separate economically viable firms from inefficient ones. In contrast, by substantially lowering reorganization costs, the reform improved the selection of viable firms into reorganization. In this sense, the new law increased the efficiency of the bankruptcy system in Colombia.
format	Publications & Research :: Policy Research Working Paper
author	Giné, Xavier Love, Inessa
author_facet	Giné, Xavier Love, Inessa
author_sort	Giné, Xavier
title	Do Reorganization Costs Matter for Efficiency? Evidence from a Bankruptcy Reform in Colombia
title_short	Do Reorganization Costs Matter for Efficiency? Evidence from a Bankruptcy Reform in Colombia
title_full	Do Reorganization Costs Matter for Efficiency? Evidence from a Bankruptcy Reform in Colombia
title_fullStr	Do Reorganization Costs Matter for Efficiency? Evidence from a Bankruptcy Reform in Colombia
title_full_unstemmed	Do Reorganization Costs Matter for Efficiency? Evidence from a Bankruptcy Reform in Colombia
title_sort	do reorganization costs matter for efficiency? evidence from a bankruptcy reform in colombia
publisher	World Bank, Washington, DC
publishDate	2012
url	http://documents.worldbank.org/curated/en/2006/07/6938466/reorganization-costs-matter-efficiency-evidence-bankruptcy-reform-colombia http://hdl.handle.net/10986/8375
_version_	1764406354533941248

Do Reorganization Costs Matter for Efficiency? Evidence from a Bankruptcy Reform in Colombia

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