The Effect of Bankruptcy Filings on Rivals' Operating Performance: Evidence from 51 Large Bankruptcies

I examine the operating performance of financially distressed firms and their rivals in the periods surrounding 51 bankruptcy filings. The analysis indicates that filings are associated with declines in rivals' revenues and profit margins. The declines occur prior to and coincident with bankruptcy filings, but dissipate quickly after a filing occurs. The adverse effect on rivals' profit margins appears to be caused by changes in firms' product market conduct, as it is robust to several methods used to screen out filings where a common shock has occurred. I then examine whether market structure affects the link between filings and rivals' profit margins. The market structure effects appear to be small.     

Saddled with Attention: Overreaction to Bankruptcy Filings

We analyze the effect of investor attention on stock prices around Chapter 11 bankruptcy filings. We measure investor attention as abnormal search volume from Google, and find that attention‐grabbing companies have more negative abnormal stock returns in the days before and during bankruptcy filings and more positive abnormal returns immediately thereafter. That is, for companies receiving high attention, investors overreact to a bankruptcy filing; for companies receiving low attention, they underreact. This pattern is more pronounced for companies with low institutional ownership and holds after controlling for standard predictors of stock performance during bankruptcy.     

Social Efficiency of the Bankruptcy Reform Act of 1978 With Regard to Personal Bankruptcy

A socially efficient bankruptcy law is one that would have the effect of minimizing the present value of social costs stemming from bankruptcy while permitting debtors to make a “fresh start.” Analysis of a sample of petitions for personal nonbusiness bankruptcy filed under the Bankruptcy Reform Act of 1978 shows that about 30 percent of petitions for Chapter 7 and about 25 percent of petitions for Chapter 13 were cases where social costs were not minimized as would be required under socially efficient bankruptcy legislation. The social costs of Chapter 7 may be reduced under proposed reform [S. 445 and H. R. 1800] as the judge would be provided with information concerning estimates of debts repayable under both chapters and would disallow those Chapter 7 cases which represented a substantial abuse of bankruptcy law. The study data suggest that guidelines for acceptance of Chapter 13 cases should also be scrutinized. In particular, petitioners should be discouraged from providing “token” debt repayment plans while maintaining ownership of large accumulations of assets.     

Consumer Bankruptcy Stigma: Understanding Relationships with Familiarity and Perceived Control

Bankruptcy stigma is commonly thought to influence debtors' bankruptcy filing decisions. Despite its importance, researchers have not collected direct quantitative measures of bankruptcy stigma, either in terms of attitudes toward bankruptcy or evaluations of filers. Across two empirical studies, we find that (1) attitudes toward bankruptcy and bankruptcy filers are less negative among those with firsthand bankruptcy experience; (2) bankruptcy stigma is a multidimensional construct that includes morality‐, warmth‐, and competence‐related elements; and (3) consistent with psychological models of blame, filers who are perceived to have more control over the circumstances leading to their bankruptcy are more highly stigmatized. By directly investigating bankruptcy stigma, this research can be used to inform models of consumer decisions about bankruptcy filings and bankruptcy policy.     

Strategically Surviving Bankruptcy during a Global Financial Crisis: The Importance of Understanding Chapter 15

Chapter 15 of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act allows foreign courts more power in cases that include foreign multinational firms. U.S. businesses unexpectedly have to file a claim in another country with bankruptcy rules that are sometimes drastically different from those in U.S. courts. This paper outlines the different bankruptcy laws in selected countries and exemplifies how some countries place U.S. creditors at a disadvantage relative to employees and stockholders. This knowledge should be incorporated into management's strategic contingency plans in the case of supplier or business customer default. During periods of global financial instability such as the 2008 financial crisis, an understanding of Chapter 15 is essential.     

International bankruptcy and the spirit of comity: New U.S. law encourages cooperation among nations

While many international businesses are successful, others experience financial difficulties and file for bankruptcy. These cases pose challenges for bankruptcy courts worldwide because the assets of the debtor are located in more than one nation. How is this being handled? The trend is toward cooperation. Under the principle of comity, one nation gives effect to the laws and judicial decisions of another nation as a matter of deference and mutual respect. The Bankruptcy Abuse Prevention and Consumer Protection Act (the Act), effective October 2005, amends the bankruptcy code in several significant ways. One such amendment is Chapter 15: Ancillary and Other Cross-Border Cases. Chapter 15 not only embraces but also advances the spirit of comity.     

Accounting for the Rise in Consumer Bankruptcy Rates in the United States: A Preliminary Analysis of Aggregate Data (1945–1981)

While previous surveys of bankrupts and cross-sectional analyses of state data have provided a profile of “typical” bankrupts and the various constraints under which they operate, little in the economic and legal literature on personal financial failure explains the postwar growth in consumer bankruptcies in the United States. This paper constitutes a first attempt to model the theoretically appropriate determinants of aggregate failure rates and to test them empirically for the period 1945 to 1981. The data indicate that the incidence of financial failure has been exacerbated by rising divorce rates, unemployment and credit use, which increased through the mid-1970's. These trends were largely mitigated by increasing consumer wealth held in the form of real estate. However, there is tentative evidence that during its first two years, the Bankruptcy Reform Act of 1978 may have encouraged consumers to petition for bankruptcy.     

Educating and empowering consumers to avoid bankruptcy

The US has the highest consumer bankruptcy rate in the world and Utah is the state with the highest rate. Bankruptcy filings are rising rapidly due to uninsured medical expenses, job loss, family break‐up and rising consumer and mortgage debt burdens. Lending standards are extremely lax among mainstream creditors while predatory and sub‐prime lending are growing. Utah State University Extension is addressing this problem by creating a new Extension educator position to focus on financial education and by training county Extension educators to mount an extensive consumer education campaign. The ‘Take Charge of Your Money’ programme, developed by the Extension specialist, is being taught throughout the state by satellite distance education. Each educator is being trained to use the Power Pay debt reduction software developed by two Utah Extension educators. As part of the emphasis on empowerment, consumers are being taught to make their own decisions on debt load rather than accepting credit because it is available. Heavy dependence of lenders on credit scores mean consumers are taking on debt that they do not have the cash flow to repay. Grant money available from the state was used to provide training for an Extension bankruptcy prevention team and to provide funding for laptop computers for Power Pay so educators can take the programme to the citizens at county fairs and other public events. While it is too soon to measure the results of the programme, Utah State University's Cooperative Extension project is an example of an aggressive response to the highest bankruptcy rate in the nation. The bankruptcy prevention team is an example of the power of the Extension Service to extend the resources of the university to improve the quality of life for the citizens of the state.     

How do bankruptcy laws affect entrepreneurship development around the world?

How do bankruptcy laws as formal institutions affect entrepreneurship development around the world? Do entrepreneur-friendly bankruptcy laws encourage more entrepreneurship development at a societal level? We posit that if bankrupt entrepreneurs are excessively punished for failure, they may give up potentially high-return but inherently high-risk opportunities to start new businesses. Amassing a cross-country database from 29 countries spanning 19 years (1990-2008), we find that lenient, entrepreneur-friendly bankruptcy laws are significantly correlated with the level of entrepreneurship development as measured by the rate of new firm entry.     

Antitrust Laws and the Relationship Between Mergers, Stock Prices and Industrial Production: A Cointegration Approach

This paper tests Grossman and Hart (1980) hypothesis that antitrust laws such as the Williams Act of 1968 and the Hart–Scott–Rodino Act of 1976 dramatically reduced the impact of stock prices on mergers. Both the cointegrating and the casual relationship between mergers, stock prices, and industrial production are studied. First, our paper supports Nelson's findings that, while stock prices have impact on mergers, industrial production does not. However, the cointegration relation between stock prices and mergers is unstable. Second, causality testing indicates that the direction of causality has changed from two-way causation before the late 1960s to one way causation from the late 1960s onwards. In particular, stock prices no longer cause mergers after the late 1960s due to changes in antitrust laws. Hence, the evidence supports Grossman and Hart's hypothesis.     

Macroeconomic factors and antidumping filings: evidence from four countries

This paper examines the relationship between antidumping filings and macroeconomic factors. Real exchange rate fluctuations affect the two criteria for dumping in opposite ways, making the overall effect on filings ambiguous in theory. Examining the filing patterns of the four major users of AD law during the 1980-98 period we find that real exchange rates and domestic real GDP growth both have statistically significant impacts on filings. Bilateral filing data indicate that a one-standard deviation real appreciation of the domestic currency increases filings by 33%. We also find one-standard deviation fall in domestic real GDP increases filings by 23%.     

Religion and ratio analysis: Towards an Islamic corporate liquidity measure

This paper contributes to the emerging literature on the effect of religion on corporate decision making and financial reporting. Financial statement analytical tools could violate several commands of Islamic law. Specifically, traditional liquidity ratios imply undervaluation, uncertainty, and interest bearing aspects that are strictly prohibited in Islamic law. We propose an Islamic-compliant measure of corporate liquidity. In order to validate our proposed ratio as a measure of corporate liquidity, we incorporate it in the traditional corporate bankruptcy prediction models. Our measure significantly improves the accuracy of the corporate bankruptcy prediction models of Altman (1968) Z-score and Ohlson (1980).     

游离于公司法、破产法之间的债权人保护

如何加强对债权人的保护是学术界一直在研究的论题,有种观点认为公司的管理者在公司资不抵债时应当由对股东负责转为对债权人负责;公司的主要目的是为股东创造收益,破产的目的是保护债权人的利益。因此,应当废除公司领域中对债权人的保护,使其尽快回归到专门为债权人服务的破产领域,让公司法和破产法各司其职,使股东利益和债权人的保护得到强化。     

Consumer Bankruptcy: A Right or a Privilege? The Role of the Courts in Establishing Moral Standards of Economic Conduct

The Norwegian Consumer Bankruptcy Act was passed 17 July 1992 to give persons with "serious debt problems (. . .) the possibility to gain control over their economy." The Act contains provisions for negotiations between the debtor and the creditors, for court rulings on repayment plans, and for a discharge of the debts not covered by the plan. The origin of the Act was a social welfare approach to the problem of overindebtedness. However, the Act embodies an inherent contradiction in that it also includes moral elements in order to prevent it from exerting a negative influence on the perceived obligation to pay one's debts. This contradiction has given the courts a wide scope of discretion in the application of the Act. As a result, cases are treated differently in different jurisdictions. Some judges put more emphasis on moral evaluations than others. This situation also gives room for strategic action from creditor groups who typically are repeat players in cases of consumer bankruptcy. In this way the more objective, social welfare approach of the Act is undermined.     

An Empirical Analysis of the Relationship Between Capital Acquisition and Bankruptcy Laws

Ineffective capital acquisition decisions at start-up may lead to business failure and bankruptcy; a result which is both costly and disruptive to the owners and other stakeholders of the firm. To cope with the risk of failure, owners embark on a variety of risk-reducing activities whereas the U.S. government attempts to moderate the downside effects of such failures through the rules surrounding bankruptcy. Previous studies imply that as owners become more aware of the protections offered through the government regulation of bankruptcy, they should become less concerned with the effects of failure and be willing to raise higher levels of initial capital. Raising higher levels of initial capital, in turn, leads owners to take actions intended to reduce firm risk and to minimize the threat to their personal financial security. Data from a sample of small firms confirm our hypothesis by showing that as the level of initial capital acquisition increases, owners embark on activities intended to reduce firm risk. However, capital acquisition is not associated with the owner's familiarity with bankruptcy regulations. As a result, governmental objectives in establishing these regulations may not be achieved. Our findings have implications for firms' owners, consultants, and policymakers, in terms of the relationship between an entrepreneur's knowledge of bankruptcy laws and the financing of their enterprises.     

Employer liability for telecommuting employees

Telecommuting is a work arrangement in which an employee regularly works at a site other than the employer's place of business—often the employee's home or a so-called telework center. Telecommuting may increase employees' job flexibility, retention, productivity, and motivation. However, telecommuting also carries distinct implications for legal liability. Among the issues are safety, adherence to disability-access laws, and wage and hour regulations. For instance, employers face issues connected with workplace safety, because they can be held accountable for accidents at a telecommuter's home office (even though the employer does not manage the premises). Telecommuting may come to be seen as a “reasonable accommodation” under the Americans with Disabilities Act, although few cases have been decided regarding this contention. Moreover, the simple fact that an employee is setting her own hours does not exempt the employer from the wage and hour provisions of the Fair Labor Standards Act. Workers must either fit that law's specific exemptions from hourly and overtime pay or else keep careful track of their hours. Perhaps the most important means of limiting problems arising from telecommuting is to implement a firm, company-wide policy (rather than apply ad hoc criteria), and to make certain that both job duties and the worker personally are suited to the minimal supervision and self-direction involved in telecommuting.     

Chapter 11 and Asbestos: Encouraging Private Enterprise or Conspiring to Avoid Liability?

This paper explores the American bankruptcy system -- especially the Chapter 11 code -- which since 1978 has allowed insolvent companies the opportunity to restructure and reorganise with the benefit of court protection from creditors. Particular attention is focused on asbestos companies, such as Johns--Manville, which have been among the most consistent and controversial filers for bankruptcy under Chapter 11. The history of asbestos and Chapter 11 is explored, against the backdrop of the burgeoning asbestos crisis, caused by increasing mortality and litigation. Some of the business and ethical issues involved are highlighted by examining in detail a recent bankruptcy (Federal Mogul/T&N in 2001) that has implications in both Britain and America. Chapter 11 bankruptcy is evaluated, particularly in the light of the trend towards similar mechanisms of insolvency in the UK, Europe and the rest of the world. It is concluded that, certainly as regards the experience with asbestos, Chapter 11 offers an inefficient and inequitable method of rehabilitating or rescuing failing businesses.     

美国银行业破产模式变化趋势及其启示

在美国,一般企业的破产主要表现为兼并与收购,遵循的是一种市场驱动的事后破产模式:而商业银行的破产过程则由金融监管部门主导,表现为一种由行政管制驱动的事前破产模式.这两种破产模式在破产适用法规、破产目标、主导者、破产程序等方面存在异同.目前由于市场竞争的发展和银行公司治理结构的改变,美国银行业兼并收购开始盛行,有向事后破产模式转变的趋势.中国银行业的公司治理和银行破产法制定亦可从中得到若干重要启示.     

Comparative analysis of Canadian,American and Swedish bankruptcy policy: why do governments legislate consumer debt?

Comparative research in consumer bankruptcy law is scarce. After profiling bankruptcy statistics in each country, the paper compares bankruptcy laws in Canada, United States and Sweden across 20 criteria and then analyses the predominate ideology underlying each law: deviant behaviour modification, consumer protection or social safety net. There is obvious tension between ideologies in each country with the punitive, deviant behaviour modification paradigm the most pervasive across all three countries. There is much we can learn from a comparative policy analysis approach, leading to the conscious development of bankruptcy policy from discernible, declared ideologies. Seven areas for future research are proposed.