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Columbia Law School

Bankruptcy Law

2006

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Bankruptcy Decisionmaking: An Empirical Study Of Continuation Bias In Small-Business Bankruptcies, Edward R. Morrison Jan 2006

Bankruptcy Decisionmaking: An Empirical Study Of Continuation Bias In Small-Business Bankruptcies, Edward R. Morrison

Faculty Scholarship

Over half of all small businesses reorganizing under Chapter 11 of the U.S. Bankruptcy Code are ultimately liquidated. Little is known about this shutdown decision and about the factors that increase or reduce the amount of time a firm spends in bankruptcy. It is widely suspected, however, that the Chapter 11 process exhibits a "continuation bias," allowing non-viable firms to linger under the protection of the court. This paper tests for the presence of continuation bias in the docket of a typical bankruptcy court over the course of a calendar year. A variety of tests are employed, including the ...