Financial Costs of Judicial Inexperience: Evidence from Corporate Bankruptcies

Benjamin Iverson, Joshua Madsen, Wei Wang, Qiping Xu

Research output: Contribution to journalArticlepeer-review

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 languageEnglish (US)
JournalJournal of Financial and Quantitative Analysis
DOIs
StateAccepted/In press - 2022

Bibliographical note

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© 2022 Cambridge University Press. All rights reserved.

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