Judge Specific Differences in Chapter 11 and Firm Outcomes
This paper uses case information on Chapter 11 filings for almost 5000 private companiesacross five district courts in the US between 1989 and 2004. We first establish that withindistricts cases are assigned randomly to judges, which allows us to estimate judge specific fixedeffects in their Chapter 11 rulings. We find very strong and economically significant differencesacross judges in the propensity to grant or deny specific motions. Specifically some judgesappear to rule persistently more favorably towards creditors or debtors. Based on the judgefixed effects we created an aggregate index to measure the pro-debtor (pro-creditor) friendlinessof each judge. We show that a pro-debtor bias leads to increased rates of re-filing and firmshutdown as well as lower post-bankruptcy credit ratings and lower annual sales growth up tofive years after the original bankruptcy filing. Finally we use the estimated judge fixed effectsto instrument for the exogenous variation in the propensity to grant specific motion.