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IdEP Seminar, Ben Iverson - "Can Small Businesses Survive Chapter 11?"

Institute of Economics

Date: 15.04.2024 / 12:00 - 13:15

Red room (USI main building at the Executive Center), Università della Svizzera italiana, Campus Ovest

A majority of small U.S. businesses attempting to reorganize in bankruptcy fail to successfully do so. Subchapter V of Chapter 11 was introduced in 2020 for firms with less than $7.5 million in total liabilities to streamline the process by reducing bankruptcy costs and negotiation frictions and enabling entrepreneurs to retain their ownership. Employing regression-discontinuity and difference-in-differences designs, we show that many small businesses reorganize under the new procedures that otherwise would have been liquidated. Further, expected creditor recoveries are at least as high in Subchapter V as in similar small business reorganizations, and post-bankruptcy survival rates are no lower. Our results show that the increased ability to preserve small businesses is not associated with a bias toward continuing unviable firms, and that creditors are not harmed by a shift in bargaining power toward small business owners. This paper is joint work with Edith Hotchkiss (Boston College), Benjamin Iverson (Brigham Young University) and Xiang Zheng (University of Connecticut)

Ben Iverson
Associate Professor of Finance at Brigham Young University