THE IMPACT OF THE NEW BANKRUPTCY CODE UPON THE AVERAGE LIABILITY OF BANKRUPT FIRMS

This paper examines the average liability of bankrupt firms during the period 1952-1989. The new Bankruptcy Code seems to have first increased and then reduced average liabilities. The latter was probably caused by a change in the behaviour of banks towards bankrupt firms. More generally, average liabilities are found to increase with falling profits, whilst a rise in interest rates result in a decline in average liability. The paper also examines the relative proportions of small and large firms amongst the bankrupt population, and produces estimates of these proportions which are unaffected by changes in the price level.