On the Design of Efficient Priority Rules for Secured Creditors: Empirical Evidence from a Change in Law

Authors

Clas Bergström, Cornell Law School
Theodore Eisenberg, Cornell Law SchoolFollow
Stefan Sundgren, Cornell Law School

Document Type

Article

Publication Date

12-2004

Keywords

Bankruptcy priority rules, Secured creditors, Finnish secured creditor priority rules, Finnish priority reform

Disciplines

Applied Statistics | Bankruptcy Law | Comparative and Foreign Law

Abstract

This article assesses the effect of a reduction in secured creditor priority on distributions and administrative costs in liquidating bankruptcy cases by reporting the first empirical study of the effect of a priority change. Priority reform had redistributive effects in liquidating bankruptcy. As expected, average payments to general unsecured creditors were significantly higher after the reform than before the reform and payments to secured creditors decreased. Reform did not increase the size of the pie to be distributed in bankruptcy. Nor did it increase the direct costs of bankruptcy.

Recommended Citation

Bergström, Clas; Eisenberg, Theodore; and Sundgren, Stefan, "On the Design of Efficient Priority Rules for Secured Creditors: Empirical Evidence from a Change in Law" (2004). Cornell Law Faculty Publications. 384.
https://scholarship.law.cornell.edu/facpub/384

Publication Citation

Published in: European Journal of Law and Economics, vol. 18, no. 3 (December 2004).