Bankruptcy Reforms When Workers Extract Rents

Peri, Alessandro

doi:10.2139/ssrn.2833669

Cited by 5 publications

(2 citation statements)

References 46 publications

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“…5 In an important corporate finance paper, Broadie, Chernov, and Sundaresan [11] study the Chapter 7 versus Chapter 11 decision problem but in a much simpler model with exogenous cash flows and initial bond finance of fixed investment. Also related are Peri [35], who in a model with fixed capital, focuses on labor contract renegotiations during Chapter 11 reorganization, and Tamayo [40], who studies the effects of eliminating Chapter 11 reorganization in a partial equilibrium model with private information where default can lead to liquidation or reorganization but debt is constant over the life of the firm. 6 Other closely related papers that incorporate liquidation include Arellano, Bai and Zhang [6]; D'Erasmo and Moscoso Boedo [16]; Khan, Senga, and Thomas [28]; Meh and Terajima [32]; and Cooper and Ejarque [14].…”

Section: Introductionmentioning

confidence: 99%

Reorganization or Liquidation: Bankruptcy Choice and Firm Dynamics

Corbae

D’Erasmo

2017

Working Paper (Federal Reserve Bank of Philadelphia)

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In this paper, 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 firm dynamics model with endogenous entry and exit to include both bankruptcy options in a general equilibrium environment. Finally, we evaluate a bankruptcy policy change 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 (allocative efficiency rises by 2.58%) and welfare (rises by 0.54%).

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Section: Introductionmentioning

confidence: 99%

Reorganization or Liquidation: Bankruptcy Choice and Firm Dynamics

Corbae

D’Erasmo

2017

Working Paper (Federal Reserve Bank of Philadelphia)

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show abstract

“…5 In an important corporate finance paper, Broadie, Chernov, and Sundaresan [11] study Chapter 7 versus Chapter 11 decision problem but in a much simpler model with exogenous cash flows and initial bond finance of fixed investment. Also related are Peri [35], who in a model with fixed capital, focuses on labor contract renegotiations during Chapter 11 reorganization, and Tamayo [40], who studies the effects of eliminating Chapter 11 reorganization in a partial equilibrium model with private information where default can lead to liquidation or reorganization but debt is constant over the life of the firm. 6 Other closely related papers that incorporate liquidation include Arellano, Bai and Zhang [6]; D'Erasmo and Moscoso Boedo [16]; Khan, Senga, and Thomas [28]; Meh and Terajima [32]; and Cooper and Ejarque [14].…”

mentioning

confidence: 99%

Reorganization or Liquidation: Bankruptcy Choice and Firm Dynamics

Corbae

D’Erasmo²

2020

Preprint

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In this paper, 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 firm dynamics model with endogenous entry and exit to include both bankruptcy options in a general equilibrium environment. Finally, we evaluate a bankruptcy policy change 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 (allocative efficiency rises by 2.58%) and welfare (rises by 0.54%).

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Credit and Firm-Level Volatility of Employment

Quadrini

Sun

2017

Journal of the European Economic Association

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We study a firm dynamics model where access to credit improves the bargaining position of firms with workers and increases the incentive to hire. To evaluate the importance of the bargaining channel for the hiring decisions of firms, we estimate the model structurally using data from Compustat and Capital IQ. We find that the bargaining channel contributes to about 5.7% of variation in firm-level employment. We also evaluate the contribution of different types of firm-level shocks to employment volatility and find that credit shocks contribute to about 8%, revenue shocks to 48% and job separation shocks to 44%.

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Bankruptcy Reforms When Workers Extract Rents

Cited by 5 publications

References 46 publications

Reorganization or Liquidation: Bankruptcy Choice and Firm Dynamics

Reorganization or Liquidation: Bankruptcy Choice and Firm Dynamics

Reorganization or Liquidation: Bankruptcy Choice and Firm Dynamics

Credit and Firm-Level Volatility of Employment

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