Do Bankruptcy Codes Matter? A Study of Defaults in France, Germany, and the U.K.
Article first published online: 1 APR 2008
2008 by The American Finance Association
The Journal of Finance
Volume 63, Issue 2, pages 565–608, April 2008
How to Cite
DAVYDENKO, S. A. and FRANKS, J. R. (2008), Do Bankruptcy Codes Matter? A Study of Defaults in France, Germany, and the U.K. The Journal of Finance, 63: 565–608. doi: 10.1111/j.1540-6261.2008.01325.x
- Issue published online: 1 APR 2008
- Article first published online: 1 APR 2008
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.