Empirical Estimates of Filtering Failure in Court-Supervised Reorganization

Authors

  • Timothy C.G. Fisher,

  • Jocelyn Martel

    Corresponding authorSearch for more papers by this author
    • Fisher is Associate Professor at Wilfrid Laurier University. Martel is Associate Professor at Université de Cergy Pontoise, THEMA and Visiting Professor at ESSEC.


*E-mail jocelyn.martel@ecu.u-cergy.fr.

Abstract

We present the first comprehensive empirical estimates of filtering failure in court-supervised reorganization. Using a sample of 303 firms attempting reorganization in Canada during 1977–1988, we find that Type I errors (accepting a plan from a nonviable firm) are four times more likely to occur than Type II errors (rejecting a plan from a viable firm) and that the incidence of filtering failure is between 22 and 53 percent or 18 and 44 percent, depending on the definition of a firm's viability.

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