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Do Bankruptcy Codes Matter? A Study of Defaults in France, Germany, and the U.K.
Author(s) -
DAVYDENKO SERGEI A.,
FRANKS JULIAN R.
Publication year - 2008
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2008.01325.x
Subject(s) - bankruptcy , creditor , default , collateral , business , debt , statutory law , financial system , sample (material) , finance , law , political science , chemistry , chromatography
Using a sample of small firms that defaulted on their bank debt in France, Germany, and the United Kingdom, we find that large differences in creditors' rights across countries lead banks to adjust their lending and reorganization practices to mitigate costly aspects of bankruptcy law. In particular, French banks respond to a creditor‐unfriendly code by requiring more collateral than lenders elsewhere, and by relying on collateral forms that minimize the statutory dilution of their claims in bankruptcy. Despite such adjustments, bank recovery rates in default remain sharply different across the three countries, reflecting very different levels of creditor protection.