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22 Eur. J.L. & Econ. 5 (2006)

handle is hein.journals/eurjlwec22 and id is 1 raw text is: Eur J Law Econ (2006) 22:5-20 DOI 10.1007/s10657-006-8978-2 Reorganization in US and European Bankruptcy law Maria Brouwer © Springer Science + Business Media, LLC 2006 Abstract European countries have amended their bankruptcy statutes in the past decades to increase the likelihood of a company's continuation in bankruptcy. Liq- uidation procedures are ill suited to realize the full value of the company as a going concern. An infusion of new finance raises company valuation and makes continuation through reorganization more likely. Reorganization preserves value, if general cred- itors as the main beneficiaries of reorganization play a crucial role in reorganization proceedings. Legal origins of national bankruptcy legislations are less important in explaining the incidence of reorganization than national attitudes towards failure and the prevalence of equity over debt finance. Keywords Financial structures . Bankruptcy laws . Legal origin JEL Classification K12 Introduction Company bankruptcy law sets rules to either liquidate a company or restructure its debt in reorganization. The US has a larger share of reorganization in bankruptcy pro- ceedings than European countries, which demands an explanation. Differences in the incidence of reorganization could ensue from differences in bankruptcy legislation. US bankruptcy proceedings are considered debtor-friendly in contrast to more tough pol- icy stances taken by other countries. More important than the harshness or gentleness of codes towards debtors is the efficiency of bankruptcy procedures. Reorganization M. Brouwer (E) University of Amsterdam, Department of Economics, Roetersstraat 11, 1018 WB Amsterdam, The Netherlands e-mail: m.t.brouwer@uva.nl Springer