Can Bankruptcy Codes Create Value? Evidence from Creditors’ Recoveries in France, Germany, and the UK

The aim of this paper is to provide new evidence on the value-creation process taking place in bankruptcy procedures that belong to different legal systems (French civil law, German civil law, and common law): to do so, we assess to which extent the debtor’s value can be preserved under bankruptcy by analyzing the recovery rates in France, Germany, and the United Kingdom. We use a unique European sample of 900 corporate bankruptcy files that were manually collected in commercial courts on the period 1993-2005. We also contribute to the literature by considering the recovery rates on the various classes of claimants (senior claims, junior claims, and new money) for each bankruptcy procedure. Our main conclusions are: (a) France and Germany show quite similar global recovery rates which are greater than in the UK, (b) when controlling for the quality of assets at the beginning of the procedure and for the structure of claims, we observe that recovery rates are not significantly different between France and the UK, while they remain greater for German companies, (c) Germany has the greatest recovery rates for senior and junior creditors, (d) the reorganization procedure and the liquidation procedure leading to the highest global recovery rate are, respectively, the French continuation and the German liquidation.