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Is Chapter 11 Efficient?


  • We are grateful for the comments and suggestions of an anonymous referee and Bill Christie (Editor). Any errors are our own.

Varouj A. Aivazian is a Professor of Economics and Finance at the University of Toronto in Ontario, Canada. Simiao Zhou is an Assistant Professor of Finance at the Shanghai University of Finance and Economics in Shanghai, China.


The efficiency of the Chapter 11 bankruptcy process is examined by estimating the impact of Chapter 11 filings on the operating performance of bankrupt firms. We control for firm-level heterogeneity in prefiling characteristics using matching methods to select benchmark firms comparable to filing firms. We compare bankrupt firms’ operating performances with those of matched nonbankrupt firms. Our results challenge the contention that Chapter 11 is an inefficient, debtor-friendly mechanism that rehabilitates economically nonviable firms. We demonstrate that firms that file under Chapter 11 perform no worse and, if anything, better than comparable nonfiling firms.