The efficiency of bankruptcy law: evidence of creditor protection in Poland

A debt does not function as a liquid asset in an ineffective enforcement environment. In this study, we investigated the efficiency of creditor protection in insolvency. We approached efficiency in three dimensions: ex ante, ex post, and interim. This paper presents the differences between Polish and Spanish ex ante efficiency, the factors influencing the interim recovery rate and efficiency, and the differences between ex ante and ex post efficiency in Polish proceedings. We studied 17,494 financial statements of Polish companies and the finalized proceedings of 784 court cases from the period 2004-2012. We applied regression analysis, combined with classification and robustness tests. Our evidence supports the conclusion that Polish insolvency proceedings are inefficient. The interim efficiency oscillates at 12% per annum. The duration of the proceeding from filing until resolution takes an average of 853 days. These results have policy implications, as creditor protection is a major aspect in attracting investment for net foreign debtors.