Bankruptcy Costs: Evidence from Small-Firm Liquidations

This paper examines the economic significance of bankruptcy cost by analysing the duration, costs and claimholder losses disclosed in the public record relating to a sample of 408 Australian corporate liquidations. Analysis indicates that liquidation may be a time consuming and costly process, but that costs are subject to economies of scale. Substantial bias was evident in management ex ante estimates of realisable values, while the liquidation process resulted in substantial losses for claimholders.