Does a Reorganization Law Improve the Efficiency of the Insolvency Law? The Finnish Experience

This paper provides empirical evidence on issues related to the role of reorganizations. The results show that creditors receive a better payoff in a reorganization than in a going concern sale in liquidation bankruptcy. The study finds support for one explanation, namely that the direct costs of a reorganization are lower than the costs of liquidation bankruptcy. However, direct costs can explain only a part of the reorganization surplus, since the reorganization surplus is much higher than the difference in direct costs.