Skip Navigation


Journal of Law, Economics, and Organization Advance Access originally published online on September 6, 2006
Journal of Law, Economics, and Organization 2007 23(3):710-730; doi:10.1093/jleo/ewm019
This Article
Right arrow Full Text
Right arrow Full Text (PDF)
Right arrow All Versions of this Article:
23/3/710    most recent
ewm019v1
Right arrow Alert me when this article is cited
Right arrow Alert me if a correction is posted
Services
Right arrow Email this article to a friend
Right arrow Similar articles in this journal
Right arrow Similar articles in ISI Web of Science
Right arrow Alert me to new issues of the journal
Right arrow Add to My Personal Archive
Right arrow Download to citation manager
Right arrowRequest Permissions
Google Scholar
Right arrow Articles by Povel, P.
Right arrow Articles by Singh, R.
Right arrow Search for Related Content
Social Bookmarking
Add to CiteULike   Add to Connotea   Add to Del.icio.us  
What's this?

© The Author 2006. Published by Oxford University Press on behalf of Yale University. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org

Sale-Backs in Bankruptcy

Paul Povel*

University of Minnesota

Rajdeep Singh**

University of Minnesota

* Carlson School of Management, University of Minnesota. Email: povel{at}umn.edu.

** Carlson School of Management, University of Minnesota. Email: rajsingh{at}umn.edu.

When bankrupt firms are sold, they are often repurchased by their former owner or manager. These insiders are by default better informed than outsiders about the true value of the firm or its assets, so other potential buyers must worry about overpaying if they win. The presence of insiders may thus have a chilling effect on the bidding. We ask how insiders should be treated in bankruptcy sales: Should they be allowed to submit bids? If so, under what conditions? We derive properties of an optimal sale procedure and show that it must be biased against insiders. Specifically, it should be harder for insiders to win with low bids than for outsiders. We show that the "market tests" that are routinely required in bankruptcy sales are suboptimal since they treat all potential buyers alike and forgo the benefits of biasing the procedure against insiders.

We would like to thank three anonymous referees for suggestions that led to major improvements of the article. We are also indebted to seminar participants at the Universities of Minnesota and Wisconsin–Madison for helpful comments.


Add to CiteULike CiteULike   Add to Connotea Connotea   Add to Del.icio.us Del.icio.us    What's this?




Disclaimer: Please note that abstracts for content published before 1996 were created through digital scanning and may therefore not exactly replicate the text of the original print issues. All efforts have been made to ensure accuracy, but the Publisher will not be held responsible for any remaining inaccuracies. If you require any further clarification, please contact our Customer Services Department.