Series: Working Papers. 1610.
Author: Miguel García-Posada and Raquel Vegas.
Topics: Corporate finance | Labour market | Quantitative methods | Legislation | Non-financial corporations, businesses.
Published in: Papeles de Economía Española, n.º 151, marzo 2017, 140-171
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Abstract
Traditionally, bankruptcy procedures in Spain have been lengthy and costly processes that have nearly always (95%) resulted in the liquidation of the insolvent firm. These dysfunctions became apparent with the large increase in bankruptcy filings during the crisis that started in 2008 and the ensuing congestion of the courts. In order to resolve these and other problems, the Bankruptcy Law has been reformed several times. The goal of this research is to analyse the impact of these reforms on two facets: the length of bankruptcy procedures and the probability of achieving a successful reorganisation, hence avoiding the firm’s liquidation. Our findings show that two of the four reforms analysed increased the percentage of reorganisations and decreased bankruptcy duration through improving the quality of insolvency administrators and by fostering out-of-court workouts for large corporations.