Working Paper: NBER ID: w23305
Authors: Shai Bernstein; Emanuele Colonnelli; Ben Iverson
Abstract: This paper investigates the consequences of liquidation and reorganization on the allocation and subsequent utilization of assets in bankruptcy. Using the random assignment of judges to bankruptcy cases as a natural experiment that forces some firms into liquidation, we find that 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, and in areas with low access to finance. The results highlight the importance of local search frictions and financial frictions in affecting the allocation of assets in bankruptcy.
Keywords: Bankruptcy; Asset Allocation; Liquidation; Reorganization
JEL Codes: G3; G33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Liquidation (G33) | Reduction in long-run utilization of assets (D25) |
| Liquidation (G33) | Lower average number of employees at liquidated locations (J63) |
| Thin markets (G19) | Exacerbated underutilization of liquidated plants (L99) |
| Low access to finance (O16) | Lower occupancy and employment of liquidated assets (G33) |