Bankruptcy Reading

Doing Business Blog - The World Bank Group

"Bankruptcy Reading

Time to dust off the old bankruptcy books. With the financial crisis starting to affect some large companies in the US and Europe, ripple effects are going to be seen throughout emerging markets.

Enter a recent study on bankruptcy by Oliver Hart, Caralee McLiesh and myself, which was just accepted at the Journal of Political Economy. We present insolvency practitioners from 88 countries with an identical case of a hotel about to default on its debt, and ask them to describe in detail how debt enforcement against this hotel will proceed in their countries. We use the data on time, cost, and the likely disposition of the assets (preservation as a going concern versus piecemeal sale) to construct a measure of the efficiency of debt enforcement in each country. In Japan and Singapore, secured creditors collect 96 cents on the dollar; in the United States, 86 cents; in Germany, 57 cents; in France, 54 cents. In contrast, Brazilian creditors fear bankruptcy: they would collect 13 cents on the dollar if their debtors entered insolvency. Turkish banks are even more fearful: they would collect 6 cents on the dollar."