Keywords
judicial inexperience, bankruptcy costs, creditor recoveries
Abstract
Exploiting the random assignment of judges to corporate bankruptcy filings, we estimate financial costs of judicial inexperience. Despite new judges’ prior legal experience, formal education, and rigorous hiring process, their public Chapter 11 cases spend 19% more time in bankruptcy, realize 31% higher legal and professional fees, and 21% lower creditor recovery rates. Examining possible mechanisms, we find that new judges take longer to rule on motions and cases assigned to these judges file more plans of reorganization. Conservative estimates suggest that minor policy adjustments could increase creditor recoveries by approximately $16.8 billion for the public firms in our sample.
Original Publication Citation
“Financial Costs of Judicial Inexperience,” with Josh Madsen, Wei Wang, and Qiping Xu, Journal of Financial and Quantitative Analysis 58, No. 3 (May 2023): 1111-1143.
BYU ScholarsArchive Citation
Iverson, Benjamin; Madsen, Joshua; Wang, Wei; and Xu, Qiping, "Financial Costs of Judicial Inexperience: Evidence From Corporate Bankruptcies" (2020). Faculty Publications. 8971.
https://scholarsarchive.byu.edu/facpub/8971
Document Type
Peer-Reviewed Article
Publication Date
2020
Publisher
Journal of Financial and Quantitative Analysis
Language
English
College
Marriott School of Business
Department
Finance
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