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Macroeconomic Instability and Corporate Failure: The Role of the Legal System
Review of Law & Economics (2009)
  • Arnab Bhattacharjee
  • Christopher Higson, London Business School
  • Sean Holly, University of Cambridge
  • Paul Kattuman, University of Cambridge

We examine how macroeconomic instability affects risk of bankruptcy and liquidation. In periods of macroeconomic instability more firms become financially distressed, while the number of potential acquirers falls. Reorganization systems such as Chapter 11 can decouple liquidation from macroeconomic conditions. We develop a model in which a firm's bankruptcy and acquisition hazards are co-determined by firm-level and sector-level factors, and by macroeconomic conditions. As a control, we also estimate the model for the UK, which is an economy without an equivalent system to Chapter 11. Differences in the responsiveness of bankruptcy to instability are largely attributable to reorganization under Chapter 11.

  • Bankruptcy,
  • Acquisitions,
  • Macroeconomic Instability,
  • Competing Risks Cox Proportional Hazards Model,
  • Chapter 11,
  • Receivership
Publication Date
February 13, 2009
Citation Information
Arnab Bhattacharjee, Christopher Higson, Sean Holly and Paul Kattuman. "Macroeconomic Instability and Corporate Failure: The Role of the Legal System" Review of Law & Economics Vol. 5 Iss. 1 (2009)
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