Working Papers

Unsecured Creditor Control in Chapter 11

In Chapter 11 bankruptcy, certain control rights are assigned to an official committee of unsecured creditors. This paper investigates the impact of the official committee on Chapter 11 outcomes using a novel dataset built from raw court documents that covers all cases from 2004-2014 with over $10 million in assets. We find that the existence of an official committee is associated with a 7-11% increase in the likelihood that the firm is acquired. It also leads to a reduction in the amount of time spent in bankruptcy, particularly for firms that end up acquired. In addition to the main results, we also find that membership composition matters and that certain influential creditors are associated with higher rates of reorganization when they are present on the official committee.

Creditor Rights and Entrepreneurship: Evidence from Fraudulent Transfer Law (with Nuri Ersahin and Rustom Irani)

We examine entrepreneurial activity following the adoption of modern-day fraudulent transfer laws in the U.S. These laws strengthen creditor rights by removing the burden of proof from creditors attempting to claw back funds that were transferred out of failing businesses. They are particularly important for entrepreneurs whose personal assets are often commingled with those of the venture. Using establishment-level data from the U.S. Census Bureau, we find significant declines in start-up entry, churning among new entrants, and closures of existing ventures after the passage of these laws. Our findings suggest that strengthening creditor rights can, in some circumstances, impede entrepreneurial activity and slow down the process of reallocating capital from failing to new businesses.

Seizing Opportunities: How Weak Governance Facilitates Deal-making (with Ofer Eldar and Jillian P. Grennan)

We examine whether and to what extent a corporation’s ability to waive the corporate opportunity doctrine, which is a critical element of a director’s duty of loyalty, shapes its ability to raise capital. We use the staggered adoption of state legislation from 2000 to 2015 that permits the waiver of the corporate opportunity doctrine to identify if this weaker form of governance can serve as a tool for attracting venture capital (VC) or private equity (PE) investment. We find that the ability to waive the corporate opportunity doctrine is associated with more deals, larger deal values, and more late-stage investments in entrepreneurial firms. The capital is accompanied by more directorships for VC and PE investors and a thickening of those investors’ overall networks among firms in treated states. That weaker governance catalyzes such investment has important implications for our understanding of law and finance, the mentoring of entrepreneurs, and decision to remain private.



The Determinacy of Corporate Bankruptcy  Draft coming soon

Negotiation in Chapter 11  Draft coming soon

The Evolution of Risk: Evidence from Natural Language Processing (with Lee Pinkowitz and Rohan Williamson)

Spillover Effects of Bankruptcy: Evidence from the Indian Insolvency and Bankruptcy Code (with Nirupama Kulkarni, S.K. Ritadhi, and Siddharth Vij)

Multinational Bankruptcy (with James Albertus, Sreedhar Bharath, and Edith Hotchkiss)



The Budgetary Impact of Ending Drug Prohibition with Jeffrey Miron (2010)

State and federal governments in the United States face massive looming fiscal deficits. One policy change that can reduce deficits is ending the drug war. Legalization means reduced expenditure on enforcement and an increase in tax revenue from legalized sales. This report estimates that legalizing drugs would save roughly $41.3 billion per year in government expenditure on enforcement of prohibition. Of these savings, $25.7 billion would accrue to state and local governments, while $15.6 billion would accrue to the federal government. Approximately $8.7 billion of the savings would result from legalization of marijuana and $32.6 billion from legalization of other drugs. The report also estimates that drug legalization would yield tax revenue of $46.7 billion annually, assuming legal drugs were taxed at rates comparable to those on alcohol and tobacco. Approximately $8.7 billion of this revenue would result from legalization of marijuana and $38.0 billion from legalization of other drugs.