Working Papers

Unsecured Creditor Control in Chapter 11

In Chapter 11 bankruptcy, 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. Because membership is voluntary, unsecured creditors form official committees in less than half of all cases in the sample. I find that the existence of an official committee leads to significantly higher rates of acquisition and lower rates of dismissal. It also leads to a reduction in the amount of time spent in bankruptcy, particularly for firms that end up reorganized. I reinforce these findings using an instrumental variables methodology that relies on the fact that official committees are formed by a particular type of attorney and that these attorneys vary in their abilities to form committees. In addition to the main results, I 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.

Early Stage

How do U.S. multinationals respond to changes in creditor rights regimes abroad? (with James Albertus, Sreedhar Bharath, and Edith Hotchkiss)

How does the use of CDS affect activism and voting in Chapter 11? (with Jongsub Lee, Tong Yob Nam, and Haelim Park)

How does an exogenous shock to the supply of credit to black-owned banks affect lending behavior? (with JA-Lamar Lyons, Jongsub Lee, and Tong Yob Nam)

How do hedge funds influence manufacturing capital reallocation during Chapter 11? (with Rustom Irani)


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.