Skip to main content

The Irrelevance of Direct Bankruptcy Costs to the Firm's Financial Reorganization Decision

Buy Article:

$51.00 plus tax (Refund Policy)


We estimate the costs of reorganization and liquidation using firm-level data on 622 commercial bankruptcies filed under Canadian law (324 liquidating firms and 298 reorganizing firms). Using a hedonic pricing model of bankruptcy costs, we find the costs of liquidation and reorganization depend on firm size, the complexity of the case, and the ability of the bankrupt firm to pay. The central finding is that, contrary to theory, 40 percent of the firms opted either for reorganization or liquidation even though it was more expensive. We conclude that rational firms must base their bankruptcy decision on factors other than direct bankruptcy costs.

Document Type: Research Article


Affiliations: University of Sydney;

Publication date: March 1, 2005

Access Key

Free Content
Free content
New Content
New content
Open Access Content
Open access content
Partial Open Access Content
Partial Open access content
Subscribed Content
Subscribed content
Free Trial Content
Free trial content
Cookie Policy
Cookie Policy
Ingenta Connect website makes use of cookies so as to keep track of data that you have filled in. I am Happy with this Find out more