marinc & vlahu - the economics of bank bankruptcy law (2012)

[...]... on R&D and on product quality A debtor-friendly bankruptcy law will improve the timing of bankruptcy Keeping the manager on board in case of bankruptcy will induce the manager to declare bankruptcy in a timely manner (Povel 1999).11 2.3 Bankruptcy Procedures and Their Ex-Post Efficiency The objectives of bankruptcy law change substantially in the ex-post sense when the debtor has already entered bankruptcy. .. automatic stay) increase the number of bankruptcy procedures 16 2 General Issues in Bankruptcy Law monitor the debtor more intensely This lowers the cost and increases the availability of debt financing However, from the ex-post point of view, the debtor-friendly bankruptcy law may be more efficient Bankruptcy law in the ex-post sense should minimize the cost of bankruptcy and at the same time lead to... Vlahu, The Economics of Bank Bankruptcy Law, DOI 10.1007/97 8-3 -6 4 2-2 180 7-1 _3, # Springer-Verlag Berlin Heidelberg 2012 21 22 3 Are Banks Special? Implications for Bank Bankruptcy Law the scrutiny of several different regulators from several countries The coordination problems between the regulators and the discrepancies in bank bankruptcy regimes across countries lead to inefficient procedures for bank bankruptcy. .. bankruptcy law. 7 Now we analyze how bankruptcy law affects incentives and the behavior of a debtor and his creditors 2.2 Ex-Ante Efficiency: Incentives in Bankruptcy Law The main objective of bankruptcy law in the ex-ante sense is to elicit optimal incentives and behavior from debtors and their creditors before bankruptcy occurs Bankruptcy law should refine the features of debt contracts in bankruptcy. .. going concern Bankruptcy law also has several other, sometimes conflicting, objectives In the ex-ante sense (i.e., before bankruptcy) , bankruptcy law aims to give proper incentives to creditors, firms, and managers Creditor-friendly bankruptcy law seems to satisfy this objective In the ex-post sense (i.e., after bankruptcy or at the point of bankruptcy) , however, debtor-friendly bankruptcy law can lead... debt from other creditors They show that debtor-friendly bankruptcy law induces the debtor to declare bankruptcy in a timely manner Bankruptcy adds value for the creditor because the court verifies the assets and liabilities of the debtor, liquidates the assets, and repays the senior creditor (the bank) first 2.3 Bankruptcy Procedures and Their Ex-Post Efficiency 11 Bankruptcy procedures around the world... (2004) In order to lower the cost of debt, Cornelli and Felli (1997) show that bankruptcy law needs to move valuable control rights from the insolvent debtor to creditors before the start of the bankruptcy process La Porta et al 10 2 General Issues in Bankruptcy Law The design of bankruptcy law should set the right incentives to trigger bankruptcy Bankruptcy law that is creditor-friendly acts as a threat... defines bankruptcy as “Status of a debtor who has been declared by judicial process to be unable to pay his or her debts.” However, the question is why such a status of bankruptcy is needed in the first place 2 We focus here on corporate bankruptcy law See White (2005) for a comparison of corporate and personal bankruptcy law ˇ M Marinc and R Vlahu, The Economics of Bank Bankruptcy Law, DOI 10.1007/97 8-3 -6 4 2-2 180 7-1 _2,... without the approval of a bankruptcy court, or the consent of shareholders or creditors The objectives of an ex-post resolution for distressed banks differ substantially from those of corporate bankruptcy Whereas containing the negative externalities of bank failure is the main concern for bank bankruptcy regimes, in corporate bankruptcy the main objective is to maximize the total value of the firm... Whereas creditor-friendly bankruptcy law may be considered ex-ante more efficient than debtor-friendly bankruptcy law, this is no longer necessary in the ex-post sense When a corporation is already in bankruptcy, debtor-friendly bankruptcy law will lead to more efficient restructuring than creditor-friendly bankruptcy law Debtor-friendly bankruptcy law may improve optimal risk-taking by financially distressed . y0 w0 h0" alt="" The Economics of Bank Bankruptcy Law . Matej Marinc ˇ • Razvan Vlahu The Economics of Bank Bankruptcy Law Matej Marinc ˇ University of Ljubljana Faculty of Economics Department. corporate bankruptcy law. See White ( 2005) for a comparison of corporate and personal bankruptcy law. M. Marinc ˇ and R. Vlahu, The Economics of Bank Bankruptcy Law, DOI 10.1007/97 8-3 -6 4 2-2 180 7-1 _2, # Springer-Verlag. Netherlands m .marinc@ uva.nl Razvan Vlahu De Nederlandsche Bank Postbus 98 1000 AB Amsterdam The Netherlands r.e .vlahu@ dnb.nl ISBN 97 8-3 -6 4 2-2 180 6-4 e-ISBN 97 8-3 -6 4 2-2 180 7-1 DOI 10.1007/97 8-3 -6 4 2-2 180 7-1 Springer Heidelberg Dordrecht