@article{38c1ef06b822404caa7a768fa5066656,
title = "When Should Bankruptcy Law Be Creditor- or Debtor-Friendly? Theory and Evidence",
abstract = "We examine how creditor protection affects firms with different levels of owners' and managers' personal costs of bankruptcy (PCB). Theoretically, we show that firms with high PCB borrow and invest more under a more debtor-friendly management stay system, whereas firms with low PCB borrow and invest more under a more creditor-friendly receivership system. Intuitively, stronger creditor protection relaxes financial constraints but reduces credit demand. Which effect dominates depends on owners' and managers' PCB. Empirically, we find support for these predictions using a Korean bankruptcy reform that replaced receivership with management stay.",
author = "David Schoenherr and Jan Starmans",
note = "Funding Information: As of April 1, 2006, the UBA replaced four laws: one that governed corporate liquidation, two that governed corporate reorganization proceedings, and one that governed private bankruptcy proceedings. The reform process was triggered in 1997 by the Asian Financial Crisis. In exchange for financial support, the International Monetary Fund (IMF) and the World Bank demanded, among other things, a modernization of bankruptcy laws in accordance with international best practice, which in essence meant convergence to U.S. bankruptcy law. 3 Funding Information: David Schoenherr is with Princeton University. Jan Starmans is with the Stockholm School of Economics. We thank Amit Seru (Editor), an anonymous Associate Editor; two excellent anonymous referees; as well as Natalie Bachas; Taylor Begley; Bo Bian; Francesca Cornelli; Julian Franks; Denis Gromb; Ben Iverson; Dirk Jenter; Stefan Lewellen; Adrien Matray; Jean‐Marie Meier; Elias Papaioannou; Giorgo Sertsios; Kelly Shue; Oren Sussman; Per Str{\"o}mberg; Vikrant Vig; Jaime F. Zender; seminar participants at Korea University, London Business School, Oxford University, and Princeton University; and conference participants at the American Law and Economics Association Meeting, the Asian Finance Association Meeting, the Colorado Finance Summit, the Global Corporate Governance Colloquia Conference, the Red Rock Finance Conference, the Santiago Finance Workshop, and the Transatlantic Doctoral Conference for their many helpful comments and suggestions. We thank Jiwon Lee, Yoon Jee (Jean) Lee, Young Kyung Grace Lee, and Hayoung Park for excellent research assistance and the Deloitte Institute of Innovation and Entrepreneurship at London Business School, the Julis‐Rabinowitz Center for Public Policy & Finance at Princeton University, and the Swedish House of Finance for financial support. Both authors have nothing to disclose with respect to 's conflict of interest disclosure policy. The Journal of Finance Publisher Copyright: {\textcopyright} 2022 the American Finance Association.",
year = "2022",
month = oct,
doi = "10.1111/jofi.13171",
language = "English (US)",
volume = "77",
pages = "2669--2717",
journal = "Journal of Finance",
issn = "0022-1082",
publisher = "Wiley-Blackwell",
number = "5",
}