Essays on Personal Bankruptcy Law and Small Business Financing PDF Download

Author: John Hackney
Publisher:
ISBN:
Category : Credit
Languages : en
Pages : 118

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Book Description
In the first chapter of my dissertation I ask whether and how debtor protection affects aggregate small business credit quantity. Using comprehensive data on the number and amount of small business loans granted by commercial banks, and employing a robust difference-in-difference empirical design utilizing staggered shocks to personal bankruptcy exemptions, I find that increases in debtor protection increase the equilibrium quantity of small business credit in local regions. This finding is statistically significant and robust, despite competing demand and supply effects. I find that an average change in the homestead exemption results in a 1.1% increase in the number of small business loans in a local area (census tract), and a 2.5% increase in the total volume. The increase in quantity is concentrated in areas with presumably higher risk aversion and higher wealth, as predicted by the wealth insurance and collateral channels, respectively, and where local banks are better able to determine borrower type. These findings add depth to previous literature on debtor protection and small business financing that finds a tightening of credit terms, and suggest a greater role of the wealth insurance properties of personal bankruptcy law in determining aggregate small business credit quantity. In the second chapter, I ask how soft information affects the average organizational structure in local banking markets. I utilize the same staggered changes in state-level personal bankruptcy exemptions as exogenous shocks to the primary information frictions facing small business lenders: adverse selection and moral hazard. I find that an average increase in exemptions reduces the average distance between borrowers and lender headquarters, where presumably high-level capital allocation decisions are made, by 2.8-3.7%. I find that this result is weaker where social and cultural factors are likely to lessen the scope for moral hazard. Additionally, I find that areas whose bank branch headquarters are more distantly located experience adverse small business outcomes following exemption increases. These results are consistent with theories of soft information and organizational structure where flatter organizations maintain an information advantage over their hierarchical peers, and suggests that information frictions play a prominent role in shaping the competitive landscape of local markets by reducing competition from outsiders.

Author: Edward R. Morrison
Publisher:
ISBN:
Category :
Languages : en
Pages : 6

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Book Description
This essay summarizes four papers: “Bargaining Around Bankruptcy: Small Business Distress and State Law,” 38 Journal of Legal Studies 255 (2009); “Bankruptcy's Rarity: An Essay on Small Business Bankruptcy in the United States,” 5 European Company & Financial Law Review 172 (2008); “Small Business Bankruptcy and the Bankruptcy Abuse and Consumer Protection Act of 2005,” A Report to the United States Small Business Administration (2007); and Douglas G. Baird & Edward R. Morrison, “Serial Entrepreneurs and Small Business Bankruptcies,” 105 Columbia Law Review 2310 (2005).

Author: Mohammad Mahdi Fahimi
Publisher:
ISBN:
Category : Bankruptcy
Languages : en
Pages : 0

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Book Description
This dissertation consists of two essays in financial economics. The first essay, included in Chapter 2, concerns the effect of debtor-in-possession (DIP) financing and DIP financing lenders on the outcome of Chapter 11 bankruptcy. When firms file for protection under Chapter 11 bankruptcy, their access to outside financing will be limited. The Bankruptcy Reform Act of 1978 has resolved this issue under section 364 of the US Bankruptcy Code by defining laws for the DIP financing, which is the unique type of financing available to firms filing for Chapter 11 bankruptcy. DIP financing is usually senior to all other securities issued by a firm and violates the absolute priority rule by standing ahead of a company’s existing debts for payment. Among the characteristics of DIP financing, limited attention has been given to the type of lender of the DIP financing. There is not much empirical evidence on whether financing a DIP loan from different types of lenders can lead to different bankruptcy outcomes. In this essay, I investigate the role of DIP financing, especially the DIP lender in the bankruptcy process. I provide evidence for the role of DIP lender, bank versus non-bank, in bankruptcy outcome, while controlling for potential endogeneity of the lender’s type. In order to control for the endogeneity of the DIP lender type, I use an instrumental variable (IV) approach. My results show that even after controlling for the endogeneity of the lender type, the source of the DIP loan still matters for the outcome of the bankruptcy process. More specifically, receiving the DIP loan from banks increases the likelihood of emerging from bankruptcy as a going concern for the bankrupt firm. The second essay, included in Chapter 2, concerns predicting bankruptcy outcome using a machine learning approach and using the bankruptcy outcome predictions to predict firms’ CDS spreads. First, I develop a machine learning model using Extreme Gradient Boosting to predict the outcome of the bankruptcy. I compare the performance of this model with that of a traditional logistics regression model and show that, while both perform well, the machine learning model outperforms the traditional model, mainly because it is able to identify non-linear patterns in the data. I, then, use the predicted probabilities of emerging from bankruptcy, combined with the predicted probabilities of bankruptcy, produced by a second machine learning model, to predict CDS spreads. I show that the predicted probability of bankruptcy and probability of emerging from bankruptcy can be used to predict firms’ CDS spreads and can improve the prediction power of benchmark models. This study contributes to the bankruptcy and bankruptcy outcome prediction literature by providing empirical evidence of the association between a firm’s characteristics and its bankruptcy outcome. I also show that using machine learning techniques to predict the bankruptcy outcome can help predict CDS spreads more accurately.

Author: John Schwartz
Publisher: Penguin
ISBN: 0399576819
Category : Business & Economics
Languages : en
Pages : 322

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Book Description
A New York Times correspondent shares his financial successes and mishaps, offering an everyman's guide to straightening out your money once and for all. Money management is one of our most practical survival skills—and also one we've convinced ourselves we're either born with or not. In reality, financial planning can be learned, like anything else. Part financial memoir and part research-based guide to attaining lifelong security, This Is the Year I Put My Financial Life in Order is the book that everyone who has never wanted to read a preachy financial guide has been waiting for. John Schwartz and his wife, Jeanne, are pre-retirement workers of an economic class well above the poverty line, but well below the one percent. Sharing his own alternately harrowing and hilarious stories—from his brush with financial ruin and bankruptcy in his thirties to his short-lived budgeted diet of cafeteria french fries and gravy—John will walk you through his own journey to financial literacy, which he admittedly started a bit late. He covers everything from investments to retirement and insurance to wills (at fifty-eight, he didn't have one!), medical directives and more. Whether you're a college grad wanting to start out on the right foot or you're approaching retirement age and still wondering what a 401(K) is, This Is the Year I Put My Financial Life in Order will help you become your own best financial adviser.

Author: Vyacheslav Mikhed
Publisher:
ISBN:
Category : Bankruptcy
Languages : en
Pages : 185

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Book Description
This thesis consists of four chapters. Chapter 1 tests the hypothesis that income shocks cause bankruptcy. Using a difference-in-difference specification, we exploit an exogenous fiscal payment, paid to Albertans, and find that this payment causes a decrease in bankruptcies, as predicted by the income shock hypothesis. Using insolvent's balance sheet data, we find that the financial benefits of bankruptcy (liabilities discharged minus wealth forgone) are higher for those filers who received the payment. This is consistent with those potential filers, with smaller advantages from bankruptcy, being dissuaded from filing by the payment. Chapter 2 examines the effect of income inequality on debt and financial distress. Following the 2008 crisis, several authors have argued that growing inequality increases debts of the poor, who attempt to match the consumption of the rich; and that these debts lead to bankruptcy. We test this argument using a unique database of essentially every personal bankruptcy filing in Canada from 2005 to 2010. Our main finding is that increased income inequality is associated with higher levels of debt in bankruptcy; in particular, larger unsecured and credit card debt and increased risk of bankruptcy. Chapter 3 explores the impact of the distance between filers and bankruptcy professionals on bankruptcy filing costs. We test if longer distances between debtors and their closest bankruptcy professionals, implying higher transactions costs, lead to debtors demanding larger financial benefits from their bankruptcy to make the bankruptcy worthwhile. We show that distance related costs are particularly important in rural areas, where distances to the closest bankruptcy professionals are typically large. Chapter 4 examines the impact of government policies on US mortgage foreclosures. Before the 2008 financial crisis, the US government encouraged mortgage lending to low income borrowers designated as a special 'under-served' group by the Community Reinvestment Act. We explore whether this law influenced mortgage foreclosures in 2003-2010. We exploit the 80 percent threshold discontinuity embedded in the law to identify the causal effect of the law on foreclosures. We find that regions with relatively faster and less expensive non-judicial foreclosure process experienced an increase in foreclosures due to the Community Reinvestment Act.

Author: Cesar E. Tamayo
Publisher:
ISBN:
Category : Bankruptcy
Languages : en
Pages : 96

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Book Description
This dissertation investigates the role that capital market imperfections play in shaping the behavior of firms along several dimensions: capital structure, investment policies, bankruptcy decisions and life-cycle dynamics. The dissertation puts together two separate but closely related papers, both of which are concerned with bankruptcy and firm financing under asymmetric information and limited enforcement. In Chapter 2, I present a model of firm finance that encompasses imperfect investor protection, risk aversion and costly state verification. Imperfect investor protection is introduced through the limited liability clause of the financial contract, and captures the maximum fraction of returns that the investor can seize from the entrepreneur. A positive lower bound on consumption then interacts with entrepreneurial risk aversion in non-trivial ways. I characterize optimal contracts and study the conditions under which standard debt is optimal. Under suitable assumptions about the structure of the problem, standard debt contracts (SDCs) are optimal if and only if investor protection is sufficiently low. On the other hand, low investor protection results in higher funding costs and bankruptcy probabilities. In my setting, this implies that when SDCs are optimal, lowering investor protection reduces the entrepreneur's welfare. Numerical examples show that moderate changes in investor protection can have large effects on the terms of the contract and on the entrepreneur's welfare. Finally, I study the role of leverage and consider the welfare consequences suboptimally implementing standard debt contracts. In Chapter 3 I study firm dynamics and industry equilibrium when firms under financial distress face a non-trivial choice between alternative bankruptcy procedures. Given limited commitment and asymmetric information, financial contracts specify default, renegotiation and reorganization policies. Default occurs in equilibrium and leads to either liquidation or renegotiation. Renegotiation entails a redistribution of social surplus, while reorganization takes the form of enhanced creditor monitoring. Firms with better contract histories are less likely to default, but, contingent on default, firms with better outside options successfully renegotiate, in line with the empirical evidence. Unless monitoring is too costly, renegotiation leads to reorganization, which resembles actual bankruptcy practice. I calibrate the model to match certain aspects of the data on bankruptcy and firm dynamics in the U.S. My counterfactual experiments show that, compared with an economy with liquidation only, the rehabilitation of firms (renegotiation and reorganization) has a sizable negative effect on exit rates and size dispersion, and positive effects on average size and productivity.

Author: Jason Damm
Publisher:
ISBN:
Category :
Languages : en
Pages : 45

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Book Description
In the U.S., individual parties who file for bankruptcy can exempt a certain dollar amount of property from creditor liquidation during the debt settlement process. We examine the effect of changes to these protection laws on bank lending to small businesses. Our results indicate that additional debtor protection, brought about by changes to bankruptcy laws, significantly reduces the amount of credit issued by banks to small businesses. We find that this impact is more severe for small businesses located in census tracts with low income levels and that our results are largely driven by lending in urban areas.

Author: Martin Shubik
Publisher: MIT Press
ISBN: 9780262693110
Category : Business & Economics
Languages : en
Pages : 472

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Book Description
This first volume in a three-volume exposition of Shubik's vision of "mathematical institutional economics" explores a one-period approach to economic exchange with money, debt, and bankruptcy. This is the first volume in a three-volume exposition of Martin Shubik's vision of "mathematical institutional economics"--a term he coined in 1959 to describe the theoretical underpinnings needed for the construction of an economic dynamics. The goal is to develop a process-oriented theory of money and financial institutions that reconciles micro- and macroeconomics, using as a prime tool the theory of games in strategic and extensive form. The approach involves a search for minimal financial institutions that appear as a logical, technological, and institutional necessity, as part of the "rules of the game." Money and financial institutions are assumed to be the basic elements of the network that transmits the sociopolitical imperatives to the economy. Volume 1 deals with a one-period approach to economic exchange with money, debt, and bankruptcy. Volume 2 explores the new economic features that arise when we consider multi-period finite and infinite horizon economies. Volume 3 will consider the specific role of financial institutions and government, and formulate the economic financial control problem linking micro- and macroeconomics.

Author: Katherine Porter
Publisher: Stanford University Press
ISBN: 0804780587
Category : Social Science
Languages : en
Pages : 322

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Book Description
About 1.5 million households filed bankruptcy in the last year, making bankruptcy as common as college graduation and divorce. The recession has pushed more and more families into financial collapse—with unemployment, declines in retirement wealth, and falling house values destabilizing the American middle class. Broke explores the consequences of this unprecedented growth in consumer debt and shows how excessive borrowing undermines the prosperity of middle class America. While the recession that began in mid-2007 has widened the scope of the financial pain caused by overindebtedness, the problem predated that large-scale economic meltdown. And by all indicators, consumer debt will be a defining feature of middle-class families for years to come. The staples of middle-class life—going to college, buying a house, starting a small business—carry with them more financial risk than ever before, requiring more borrowing and new riskier forms of borrowing. This book reveals the people behind the statistics, looking closely at how people get to the point of serious financial distress, the hardships of dealing with overwhelming debt, and the difficulty of righting one's financial life. In telling the stories of financial failures, this book exposes an all-too-real part of middle-class life that is often lost in the success stories that dominate the American economic narrative. Authored by experts in several disciplines, including economics, law, political science, psychology, and sociology, Broke presents analyses from an original, proprietary data set of unprecedented scope and detail, the 2007 Consumer Bankruptcy Project. Topics include class status, home ownership, educational attainment, impacts of self-employment, gender differences, economic security, and the emotional costs of bankruptcy. The book makes judicious use of illustrations to present key findings and concludes with a discussion of the implications of the data for contemporary policy debates.

Author: American Bar Association. House of Delegates
Publisher: American Bar Association
ISBN: 9781590318737
Category : Law
Languages : en
Pages : 216

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Book Description
The Model Rules of Professional Conduct provides an up-to-date resource for information on legal ethics. Federal, state and local courts in all jurisdictions look to the Rules for guidance in solving lawyer malpractice cases, disciplinary actions, disqualification issues, sanctions questions and much more. In this volume, black-letter Rules of Professional Conduct are followed by numbered Comments that explain each Rule's purpose and provide suggestions for its practical application. The Rules will help you identify proper conduct in a variety of given situations, review those instances where discretionary action is possible, and define the nature of the relationship between you and your clients, colleagues and the courts.