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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 ISSN 0167-2681.

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Official URL: https://doi.org/10.1016/j.jebo.2019.01.001

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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
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
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:
DateEvent
February 2019Published
14 January 2019Available
3 January 2019Accepted
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
Date of first compliant deposit: 18 March 2019
Date of first compliant Open Access: 14 July 2020
RIOXX Funder/Project Grant:
Project/Grant IDRIOXX Funder NameFunder ID
114C091Türkiye Bilimsel ve Teknolojik Araştirma Kurumuhttp://dx.doi.org/10.13039/501100004410

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