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bankruptcy, economics of

Arturo Bris
From The New Palgrave Dictionary of Economics, Second Edition, 2008
Edited by Steven N. Durlauf and Lawrence E. Blume
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Abstract

Bankruptcy is the formal procedure to resolve the disputes among creditors, shareholders, and managers of a company in financial distress. Countries have designed bankruptcy procedures that differ in the control that is given to the existing management relative to creditors. These differences determine the incentives that are given to the parties before, during, and after the bankruptcy proceedings. They also determine how expensive the bankruptcy process is. Ultimately, bankruptcy costs are borne by firms’ shareholders.
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How to cite this article

Bris, Arturo. "bankruptcy, economics of." The New Palgrave Dictionary of Economics. Second Edition. Eds. Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan, 2008. The New Palgrave Dictionary of Economics Online. Palgrave Macmillan. 22 November 2017 <http://www.dictionaryofeconomics.com/article?id=pde2008_B000324> doi:10.1057/9780230226203.0093

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