Do Reorganization Costs Matter for Efficiency? Evidence from a Bankruptcy Reform in Colombia

An efficient bankruptcy system should liquidate nonviable businesses and reorganize viable ones. The importance of this filtering process has long been recognized in the literature; the typical reason advanced for its failure has been biases (in codes or among judges). In this paper we show that ban...

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Main Authors:	Gine, Xavier, Love, Inessa
Format:	Journal Article
Language:	EN
Published:	2012
Subjects:	Production Cost Capital, Total Factor, and Multifactor Productivity Capacity D240 Bankruptcy Liquidation G330 Corporation and Securities Law K220 Formal and Informal Sectors Shadow Economy Institutional Arrangements O170
Online Access:	http://hdl.handle.net/10986/5780

id	okr-10986-5780
recordtype	oai_dc
spelling	okr-10986-57802021-04-23T14:02:23Z Do Reorganization Costs Matter for Efficiency? Evidence from a Bankruptcy Reform in Colombia Gine, Xavier Love, Inessa Production Cost Capital, Total Factor, and Multifactor Productivity Capacity D240 Bankruptcy Liquidation G330 Corporation and Securities Law K220 Formal and Informal Sectors Shadow Economy Institutional Arrangements O170 An efficient bankruptcy system should liquidate nonviable businesses and reorganize viable ones. The importance of this filtering process has long been recognized in the literature; the typical reason advanced for its failure has been biases (in codes or among judges). In this paper we show that bankruptcy costs can be another source of such filtering failure. We illustrate this with the Colombian reform of 1999. Using data from 1,924 firms filing for bankruptcy between 1996 and 2003, we find that the prereform reorganization proceedings were so inefficient that the bankruptcy system failed to separate economically viable firms from inefficient ones. In contrast, by streamlining the reorganization process, the reform contributed to the improvement of the selection of viable firms into reorganization. In this sense, the new law increased the efficiency of the bankruptcy system in Colombia. 2012-03-30T07:34:30Z 2012-03-30T07:34:30Z 2010 Journal Article Journal of Law and Economics 00222186 http://hdl.handle.net/10986/5780 EN http://creativecommons.org/licenses/by-nc-nd/3.0/igo World Bank Journal Article Colombia
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	EN
topic	Production Cost Capital, Total Factor, and Multifactor Productivity Capacity D240 Bankruptcy Liquidation G330 Corporation and Securities Law K220 Formal and Informal Sectors Shadow Economy Institutional Arrangements O170
spellingShingle	Production Cost Capital, Total Factor, and Multifactor Productivity Capacity D240 Bankruptcy Liquidation G330 Corporation and Securities Law K220 Formal and Informal Sectors Shadow Economy Institutional Arrangements O170 Gine, Xavier Love, Inessa Do Reorganization Costs Matter for Efficiency? Evidence from a Bankruptcy Reform in Colombia
geographic_facet	Colombia
relation	http://creativecommons.org/licenses/by-nc-nd/3.0/igo
description	An efficient bankruptcy system should liquidate nonviable businesses and reorganize viable ones. The importance of this filtering process has long been recognized in the literature; the typical reason advanced for its failure has been biases (in codes or among judges). In this paper we show that bankruptcy costs can be another source of such filtering failure. We illustrate this with the Colombian reform of 1999. Using data from 1,924 firms filing for bankruptcy between 1996 and 2003, we find that the prereform reorganization proceedings were so inefficient that the bankruptcy system failed to separate economically viable firms from inefficient ones. In contrast, by streamlining the reorganization process, the reform contributed to the improvement of the selection of viable firms into reorganization. In this sense, the new law increased the efficiency of the bankruptcy system in Colombia.
format	Journal Article
author	Gine, Xavier Love, Inessa
author_facet	Gine, Xavier Love, Inessa
author_sort	Gine, Xavier
title	Do Reorganization Costs Matter for Efficiency? Evidence from a Bankruptcy Reform in Colombia
title_short	Do Reorganization Costs Matter for Efficiency? Evidence from a Bankruptcy Reform in Colombia
title_full	Do Reorganization Costs Matter for Efficiency? Evidence from a Bankruptcy Reform in Colombia
title_fullStr	Do Reorganization Costs Matter for Efficiency? Evidence from a Bankruptcy Reform in Colombia
title_full_unstemmed	Do Reorganization Costs Matter for Efficiency? Evidence from a Bankruptcy Reform in Colombia
title_sort	do reorganization costs matter for efficiency? evidence from a bankruptcy reform in colombia
publishDate	2012
url	http://hdl.handle.net/10986/5780
_version_	1764396271197487104

Do Reorganization Costs Matter for Efficiency? Evidence from a Bankruptcy Reform in Colombia

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