Reorganization or Liquidation: Bankruptcy Choice and Firm Dynamics

• 成果类型: Article
• 署名作者: Corbae, Dean; D'Erasmo, Pablo
• 署名单位: University of Wisconsin System; University of Wisconsin Madison; National Bureau of Economic Research; Federal Reserve System - USA; Federal Reserve Bank - Philadelphia
• 刊物名称: REVIEW OF ECONOMIC STUDIES
• ISSN/ISSBN: 0034-6527
• DOI: 10.1093/restud/rdaa091
• 发表日期: 2021
• 页码: 2239-2274
• 关键词: capital structure; Aggregate productivity; misallocation; debt; prediction; chapter-7; frictions; finance; credit; equity

摘要

In this article, we ask how bankruptcy law affects the financial decisions of corporations and its implications for firm dynamics. According to current U.S. law, firms have two bankruptcy options: Chapter 7 liquidation and Chapter 11 reorganization. Using Compustat data, we first document capital structure and investment decisions of non-bankrupt, Chapter 11, and Chapter 7 firms. Using those data moments, we then estimate parameters of a general equilibrium firm dynamics model with endogenous entry and exit to include both bankruptcy options. Finally, we evaluate a bankruptcy policy change similar to one recommended by the American Bankruptcy Institute that amounts to a fresh start for bankrupt firms. We find that changes to the law can have sizable consequences for borrowing costs and capital structure which via selection affects productivity, as well as long run welfare.