Is Chapter 11 Too Favorable to Debtors? Evidence from Abroad

Chapter 11 is widely believed to be among the industrialized world\u27s most debtor-oriented reorganization laws. Critics assert that Chapter 11 is too easily available and that it allows debtors too much control by, inter alia, not requiring appointment of a trustee. One criticism of Chapter 11, low returns to unsecured creditors, resonates with an important theme of this Symposium, the Bebchuk-Fried proposal to reduce secured creditor priority in insolvency proceedings. The Chapter 11 criticisms and the Bebchuk-Fried proposal raise the question whether less easy access to Chapter 11, reduced debtor control, diminished secured creditor priority, or other changes could reduce filings and delays, improve performance, and reduce costs. Directly exploring such issues without repealing or changing Chapter 11 is not possible. Social experiments could help supply an answer. Given political and practical reality, however, such experiments are unlikely to be conducted. Second-best empirical evaluation methods will have to suffice. One method is to compare Chapter 11\u27s performance with that of a reorganization system similar to Chapter 11, but differing in some crucial respects, such as whether a trustee or other official must be appointed. Comparing Chapter 11\u27s results with those of the second system should yield insights into Chapter 11\u27s efficacy. This Article presents the results of such an empirical study. It compares data from prior Chapter 11 studies with new data on Finnish reorganizations. Finnish reorganization law is in many important respects similar to Chapter 11. But it contains two central features that are less favorable to debtors. The first feature is its early detection and termination of cases inappropriate for reorganization. A second noteworthy difference is the U.S. debtors\u27 greater influence over the reorganization plan and the information communicated to creditors. The United States is probably the only developed nation that leaves the debtor in unsupervised possession of the estate during a reorganization. This Article examines whether differences in the countries\u27 reorganization laws affect their reorganization systems\u27 performance. In particular, one expects Finnish reorganization proceedings to be more selectively employed, to be quicker, to be less likely to devote time and energy to hopeless firms, and to generate results more favorable to creditors. Our comparative analysis indicates that a greater portion of insolvent firms reorganize in the United States than in Finland. These findings are consistent with the hypothesis that Chapter 11\u27s prodebtor features attract more filings and induce debtors to file at an earlier stage of financial difficulty. Surprisingly, we find no evidence that the U.S. system leads to reorganization plans that are more favorable to debtors. While Finnish reorganization mechanics are more procreditor, a substantive rule requiring full payment to creditors for owners to retain ownership may generate U.S. plans that are more favorable to creditors. We confirm the favorable treatment of U.S. unsecured creditors by briefly examining results from Canada, Japan, and Australia

Secured Debt and the Likelihood of Reorganization

Theory suggests that secured creditors may increasingly oppose a debtor’s reorganization as the value of their collateral approaches the amount of their claims. If reorganization occurs and the value of the firm appreciates, the secured creditor receives only part of the gain. But if the firm’s value depreciates, the secured creditor bears all of the cost. Secured claimants, thus, often have more to lose than to gain in reorganizations. This study of Finnish reorganizations filed in districts that account for most of the country’s reorganizations finds that creditor groups most likely to be well-secured are most likely to oppose reorganization. We also find a negative correlation between how well-secured banks and other institutional lenders are and the likelihood of a confirmed reorganization plan. Limiting the priority of secured debt might stimulate reorganizations

Secured Debt and the Likelihood of Reorganization

Theory suggests that secured creditors may increasingly oppose a debtor’s reorganization as the value of their collateral approaches the amount of their claims. If reorganization occurs and the value of the firm appreciates, the secured creditor receives only part of the gain. But if the firm’s value depreciates, the secured creditor bears all of the cost. Secured claimants, thus, often have more to lose than to gain in reorganizations. This study of Finnish reorganizations filed in districts that account for most of the country’s reorganizations finds that creditor groups most likely to be well-secured are most likely to oppose reorganization. We also find a negative correlation between how well-secured banks and other institutional lenders are and the likelihood of a confirmed reorganization plan. Limiting the priority of secured debt might stimulate reorganizations

Larger Board Size and Decreasing Firm Value in Small Firms

Several studies hypothesize a relation between board size and financial performance. Empirical tests of the relation exist in only a few studies of large U.S. firms. We find a significant negative correlation between board size and profitability in a sample of small and midsize Finnish firms. Finding a board-size effect for a new and different class of firms affects the range of explanations for the board-size effect

Larger Board Size and Decreasing Firm Value in Small Firms

Several studies hypothesize a relation between board size and financial performance. Empirical tests of the relation exist in only a few studies of large U.S. firms. We find a significant negative correlation between board size and profitability in a sample of small and midsize Finnish firms. Finding a board-size effect for a new and different class of firms affects the range of explanations for the board-size effect

The Fate of Firms: Explaining Mergers and Bankruptcies

Using a uniquely complete data set of more than 50,000 observations of approximately 16,000 corporations, we test theories that seek to explain which firms become merger targets and which firms go bankrupt. We find that merger activity is much greater during prosperous periods than during recessions. In bad economic times, firms in industries with high bankruptcy rates are less likely to file for bankruptcy than they are in better years, supporting the market illiquidity arguments made by Shleifer and Vishny (1992). At the firm level, we find that, among poorly performing firms, the likelihood of merger increases with poorer performance, but among better performing firms, the relation is reversed and chances of merger increase with better performance. Such a changing relation has not been detected in prior merger studies. We also find that low-growth, resource-rich firms are prime acquisition targets and that firms’ debt capacity relates negatively to the likelihood of a merger. Debt-related variables, leverage and secured debt, play an especially prominent role in distinguishing between which firms merge and which firms go bankrupt

Cross-country differences in disclosure quality : a study of fair value disclosures by european real estate companies

Companies are under IAS 40 required to report fair values of investment properties on the balance sheet or to disclose them in the notes. The standard requires also that companies have to disclose the methods and significant assumptions applied in determining fair values of investment properties. However, IAS 40 does not include any illustrative examples or other guidance on how to apply the disclosure requirements. We use a sample with publicly traded companies from the real estate sector in the EU. We find that a majority of the companies use income based methods for the measurement of fair values but there are considerable cross-country variations in the level of disclosures about the assumptions used in determining fair values. More specifically, we find that Scandinavian and German origin companies disclose more than French and English origin companies. We also test whether disclosure quality is associated with enforcement quality measured with the "Rule of Law" index according to Kaufmann et al. (2010), and associated with a secrecy- versus transparency-measure based on Gray (1988). We find a positive association between disclosure and earnings quality and a negative association with secrecy

Are the most capable auditors in the Big 4 firms?

The CPA exam provides an evaluation of the auditors' professional competences at the early stages of their careers. Using information from the results generated in Sweden, the paper shows that i) auditors at Big 4 firms are younger when they take the exam, ii) younger auditors and auditors at Big 4 firms perform better in the exam iii) there is a positive association between the results in the CPA exam and wage increases after having received the CPA certification and the association is stronger at Big 4 firms. This evidence is consistent with a theoretical model where Big 4 audit firms attract and retain the more capable auditors of each cohort, based on the imperfect information about the capabilities of the auditors that they have

CODE-EHR best practice framework for the use of structured electronic healthcare records in clinical research.

Big data is central to new developments in global clinical science aiming to improve the lives of patients. Technological advances have led to the routine use of structured electronic healthcare records with the potential to address key gaps in clinical evidence. The covid-19 pandemic has demonstrated the potential of big data and related analytics, but also important pitfalls. Verification, validation, and data privacy, as well as the social mandate to undertake research are key challenges. The European Society of Cardiology and the BigData@Heart consortium have brought together a range of international stakeholders, including patient representatives, clinicians, scientists, regulators, journal editors and industry. We propose the CODE-EHR Minimum Standards Framework as a means to improve the design of studies, enhance transparency and develop a roadmap towards more robust and effective utilisation of healthcare data for research purposes

CODE-EHR best-practice framework for the use of structured electronic health-care records in clinical research.

Big data is important to new developments in global clinical science that aim to improve the lives of patients. Technological advances have led to the regular use of structured electronic health-care records with the potential to address key deficits in clinical evidence that could improve patient care. The COVID-19 pandemic has shown this potential in big data and related analytics but has also revealed important limitations. Data verification, data validation, data privacy, and a mandate from the public to conduct research are important challenges to effective use of routine health-care data. The European Society of Cardiology and the BigData@Heart consortium have brought together a range of international stakeholders, including representation from patients, clinicians, scientists, regulators, journal editors, and industry members. In this Review, we propose the CODE-EHR minimum standards framework to be used by researchers and clinicians to improve the design of studies and enhance transparency of study methods. The CODE-EHR framework aims to develop robust and effective utilisation of health-care data for research purposes