Asset Allocation in Bankruptcy

Shai Bernstein, Emanuele Colonnelli, Benjamin Charles Iverson

Research output: Working paper

Abstract

This paper investigates the consequences of liquidation and reorganization on the allocation and subsequent utilization of assets in bankruptcy. We identify 129,000 bankrupt establishments and construct a novel dataset that tracks the occupancy, employment and wages paid at real estate assets over time. Using the random assignment of judges to bankruptcy cases as a natural experiment that forces some firms into liquidation, we find that even after accounting for reallocation, the long-run utilization of assets of liquidated firms is lower relative to assets of reorganized firms. These effects are concentrated in thin markets with few potential users, in areas with low access to finance, and in areas with low economic growth. The results highlight that different bankruptcy approaches affect asset allocation and utilization particularly when search frictions and financial frictions are present.
Original languageEnglish (US)
PublisherSocial Science Research Network (SSRN)
Number of pages71
StatePublished - Feb 1 2016

Fingerprint

Bankruptcy
Asset allocation
Assets
Liquidation
Economic growth
Search frictions
Wages
Reallocation
Reorganization
Natural experiment
Real estate
Financial frictions
Thin markets
Access to finance
Random assignment

Cite this

Bernstein, S., Colonnelli, E., & Iverson, B. C. (2016). Asset Allocation in Bankruptcy. Social Science Research Network (SSRN).
Bernstein, Shai ; Colonnelli, Emanuele ; Iverson, Benjamin Charles. / Asset Allocation in Bankruptcy. Social Science Research Network (SSRN), 2016.
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Bernstein, S, Colonnelli, E & Iverson, BC 2016 'Asset Allocation in Bankruptcy' Social Science Research Network (SSRN).

Asset Allocation in Bankruptcy. / Bernstein, Shai; Colonnelli, Emanuele; Iverson, Benjamin Charles.

Social Science Research Network (SSRN), 2016.

Research output: Working paper

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AB - This paper investigates the consequences of liquidation and reorganization on the allocation and subsequent utilization of assets in bankruptcy. We identify 129,000 bankrupt establishments and construct a novel dataset that tracks the occupancy, employment and wages paid at real estate assets over time. Using the random assignment of judges to bankruptcy cases as a natural experiment that forces some firms into liquidation, we find that even after accounting for reallocation, the long-run utilization of assets of liquidated firms is lower relative to assets of reorganized firms. These effects are concentrated in thin markets with few potential users, in areas with low access to finance, and in areas with low economic growth. The results highlight that different bankruptcy approaches affect asset allocation and utilization particularly when search frictions and financial frictions are present.

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Bernstein S, Colonnelli E, Iverson BC. Asset Allocation in Bankruptcy. Social Science Research Network (SSRN). 2016 Feb 1.