Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/242119
Authors: 
Filer, Randall Keith
Kovač, Dejan
Shapiro, Jacob N.
Srhoj, Stjepan
Year of Publication: 
2021
Series/Report no.: 
IWH Discussion Papers No. 10/2021
Publisher: 
Leibniz-Institut für Wirtschaftsforschung Halle (IWH), Halle (Saale)
Abstract: 
Bankruptcy restructuring procedures are used in most legal systems to decide the fate of businesses facing financial hardship. We study how bargaining failures in such procedures impact the economic performance of participating firms in the context of Croatia, which introduced a 'pre-bankruptcy settlement' (PBS) process in the wake of the Great Recession of 2007 - 2009. Local institutions left over from the communist era provide annual financial statements for both sides of more than 180,000 debtor-creditor pairs, enabling us to address selection into failed negotiations by matching a rich set of creditor and debtor characteristics. Failures to settle at the PBS stage due to idiosyncratic bargaining problems, which effectively delays entry into the standard bankruptcy procedure, leads to a lower rate of survival among debtors as well as reduced employment, revenue, and profits. We also track how bargaining failures diffuse through the network of creditors, finding a significant negative effect on small creditors, but not others. Our results highlight the impact of delay and the importance of structuring bankruptcy procedures to rapidly resolve uncertainty about firms' future prospects.
Subjects: 
bankruptcy
insolvency
liquidation
restructuring
JEL: 
D02
G33
G34
L38
P37
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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