Four Facts About Corporate Bankruptcy In The U.S.
Speaker(s) Prof. Katherine Waldock, Assistant Professor, Georgetown University's McDonough School of Business, USA Publication CAFRAL Conference room on Mezzanine Floor, Main Building. Reserve Bank of India, Fort, Mumbai 400 001

The U.S. Bankruptcy Code has been in place for four decades. In this time, the bankruptcy process for large firms has evolved in ways that were intended and un- intended. Chapter 7 has become obsolete, with 99% of large corporate bankruptcies playing out in Chapter 11. Even firms wishing to liquidate usually choose to sell their assets in Chapter 11. Bankruptcy outcomes are mostly consistent with objectives: for example, firms that intend to reorganize but ultimately liquidate only account for 6% of the sample. Using a combination of heuristic and machine learning techniques, I characterize the events that take place prior to bankruptcy. I show that sophisticated, pre-arranged bankruptcy plans have been steadily rising. Of those firms that experience unanticipated liquidations, the characteristics of failed reorganizations differ from those of failed acquisitions. These findings have profound implications for ex-ante bankruptcy efficiency, the export of U.S. bankruptcy policy to other nations, and the direction of bankruptcy research.

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