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An experimental study of the investment implications of bankruptcy laws
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Büyükboyacı, Mürüvvet, Gürdal, Mehmet Y., Kibris, Arzu and Kibris, Özgür (2019) An experimental study of the investment implications of bankruptcy laws. Journal of Economic Behavior and Organization, 158 . pp. 607-629. doi:10.1016/j.jebo.2019.01.001
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Official URL: https://doi.org/10.1016/j.jebo.2019.01.001
Abstract
In bankruptcy laws, proportionality is the universal norm when allocating the liquidation value of a bankrupt firm among creditors. The theoretical literature on bankruptcy proposes two prominent alternatives to proportionality: the equal awards and the equal losses principles. We use an experiment to analyze and compare actual creditor behavior under these three principles. More specifically, we test the following hypotheses: replacing proportionality with equal losses increases total investment while replacing proportionality with equal awards decreases total investment; under all three principles individual investment choices decrease in response to an increase in the probability of bankruptcy or an increase in risk aversion; total investment difference between proportionality and either of the other two principles is independent of the probability of bankruptcy as long as both induce an interior equilibrium. The results of the nonparametric tests and random effects Tobit regression analyses we conduct on our experimental data offer support for all hypotheses.
| Item Type: | Journal Article | ||||||||
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| Subjects: | H Social Sciences > HB Economic Theory H Social Sciences > HG Finance |
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| Divisions: | Faculty of Social Sciences > Politics and International Studies | ||||||||
| Library of Congress Subject Headings (LCSH): | Bankruptcy -- Mathematical models, Game theory | ||||||||
| Journal or Publication Title: | Journal of Economic Behavior and Organization | ||||||||
| Publisher: | Elsevier Science BV | ||||||||
| ISSN: | 0167-2681 | ||||||||
| Official Date: | February 2019 | ||||||||
| Dates: |
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| Volume: | 158 | ||||||||
| Page Range: | pp. 607-629 | ||||||||
| DOI: | 10.1016/j.jebo.2019.01.001 | ||||||||
| Status: | Peer Reviewed | ||||||||
| Publication Status: | Published | ||||||||
| Access rights to Published version: | Restricted or Subscription Access | ||||||||
| RIOXX Funder/Project Grant: |
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