Voluntary bankruptcy as preemptive persuasion

Arbeitspapier

This paper examines the phenomenon of management-initiated, court-supervised reorganization of companies in U.S. bankruptcy court. The proposed in-court persuasion mechanism reconciles excessive reorganizations of non-viable companies (and subsequent repeat failures) with management-initiated filings and a judge who aims to always take appropriate action. In the model, management makes a preemptive voluntary filing to retain control of the process, and thereby engage in a game of Bayesian Persuasion with asymmetric information vis-à-vis the judge. This mechanism endogenously results in the reorganization of some non-viable companies, and exclusively management-initiated (i.e., voluntary) bankruptcy filings. This paper, therefore, explains why non-viable companies could be permitted to reorganize and why there are repeat offender firms that enter bankruptcy multiple times.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IHS Economics Series ; No. 334

Classification and Topics

• Classification: Wirtschaft ; Noncooperative Games ; Firm Behavior: Theory ; Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior ; Asymmetric and Private Information; Mechanism Design ; Search; Learning; Information and Knowledge; Communication; Belief; Unawareness ; Bankruptcy; Liquidation ; Regulation and Business Law: General ; Legal Procedure, the Legal System, and Illegal Behavior: General
• Subject: Bayesian Persuasion ; Bankruptcy ; Chapter 11 ; Asymmetric Information

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Dinev, Nikolay
• Event: Veröffentlichung
• (who): Institute for Advanced Studies (IHS)
• (where): Vienna
• (when): 2017

Further information

• Handle: http://hdl.handle.net/10419/183477
• Last update: 10.03.2025, 11:42 AM CET