Work

Chapter 11 bankruptcy outcomes and gubernatorial election cycles

Year: 2025

Type: article

Abstract: We find that Chapter 11 bankruptcy cases are more likely to result in emergence if decided shortly before a gubernatorial election, where the incumbent seeks re-election. However, firms emerging from bankruptcy during this period have a lower chance of long-term survival. This suggests that governors promote the survival of bankrupt firms, even those without a sustainable business model, to enhance their re-election prospects. Governors support bankrupt firms by influencing court decision-makers – particularly judges. A key motive for such gubernatorial intervention is to secure the votes of employees affected by bankruptcy.

Source: Finance research letters

DOI: 10.1016/j.frl.2025.107523

Authors: Wolfgang Breuer, Simon Haas, Andreas Knetsch

Institutions: RWTH Aachen University, Leibniz Institute for Financial Research SAFE

Language: English

Topic: Corporate Insolvency and Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

SDG: Peace, justice, and strong institutions

Open Access status: hybrid

Estimated APC paid: $3,730