The Real Effects of Bankruptcy Forum Shopping

By: Samuel Antill and Aymeric Bellon

Format:Print
| Language:English
| Pages:59

Abstract

Many non-Delaware firms strategically file for bankruptcy in Delaware. Should this "forum shopping" be allowed? This question has motivated six congressional bill proposals over decades of policy debate. Using a novel natural experiment and Census-Bureau microdata, we inform this debate. Comparing observably similar firms within a Delaware-adjacent state, we show that physical proximity to Delaware predicts forum shopping. Instrumenting with proximity, we find that forum shopping causally: (i) prevents closures and liquidations, (ii) shortens bankruptcies, (iii) boosts creditor recovery, and (iv) increases post-bankruptcy employment by 62%. Proximity to Delaware is uncorrelated with pre-bankruptcy employment trends, validating the exclusion restriction.