WILL THE BANKRUPTCY REFORMS WORK - AN EMPIRICAL-ANALYSIS OF FINANCIALREORGANIZATION IN CANADA

The new Bankruptcy Act has two clear aims: (i) to increase the number of firms opting for reorganization over liquidation, and (ii) to incre ase protection for wage earners at bankrupt firms. The paper examines a unique micro data set of 338 commercial financial reorganization pro posals filed in Canada during the period 1978-87 to determine whether these aims are likely to be met. Estimates from a logit model of reorg anization plan acceptance indicate that the new Act will result in a r oughly 7 percentage point increase in the number of reorganization pla ns that creditors accept. Everything else being equal, these changes a re estimated to save about 120 jobs per year in Canada. Thus, while th e new Act will increase the rate at which creditors accept reorganizat ion plans, the actual impact of a higher acceptance rate will be quite small.