Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/183477
Authors: 
Dinev, Nikolay
Year of Publication: 
2017
Series/Report no.: 
IHS Economics Series 334
Abstract: 
This paper examines the phenomenon of management-initiated, court-supervised reorganization of companies in U.S. bankruptcy court. The proposed in-court persuasion mechanism reconciles excessive reorganizations of non-viable companies (and subsequent repeat failures) with management-initiated filings and a judge who aims to always take appropriate action. In the model, management makes a preemptive voluntary filing to retain control of the process, and thereby engage in a game of Bayesian Persuasion with asymmetric information vis-à-vis the judge. This mechanism endogenously results in the reorganization of some non-viable companies, and exclusively management-initiated (i.e., voluntary) bankruptcy filings. This paper, therefore, explains why non-viable companies could be permitted to reorganize and why there are repeat offender firms that enter bankruptcy multiple times.
Subjects: 
Bayesian Persuasion
Bankruptcy
Chapter 11
Asymmetric Information
JEL: 
C72
D21
D72
D82
D83
G33
K20
K40
Creative Commons License: 
http://creativecommons.org/licenses/by/4.0/
Document Type: 
Working Paper

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