Asset Allocation in Bankruptcy

119 Pages Posted: 11 Oct 2015 Last revised: 10 Jun 2018

See all articles by Shai Bernstein

Shai Bernstein

Harvard Business School

Emanuele Colonnelli

University of Chicago - Booth School of Business

Benjamin Charles Iverson

Brigham Young University

Multiple version iconThere are 2 versions of this paper

Date Written: April 26, 2018


This paper investigates the consequences of liquidation and reorganization on the allocation and subsequent utilization of assets in bankruptcy. Using the random assignment of judges to bankruptcy cases as a natural experiment that forces some firms into liquidation, we find that the long-run utilization of assets of liquidated firms is lower relative to assets of reorganized firms. These effects are concentrated in thin markets with few potential users, and in areas with low access to finance. These findings suggest that when search frictions are large, liquidation can lead to inefficient allocation of assets in bankruptcy.

Keywords: capital allocation, bankruptcy, liquidation, fire sales

JEL Classification: G33, K22, E22, E44

Suggested Citation

Bernstein, Shai and Colonnelli, Emanuele and Iverson, Benjamin Charles, Asset Allocation in Bankruptcy (April 26, 2018). Journal of Finance, Forthcoming, Available at SSRN: or

Shai Bernstein

Harvard Business School ( email )

Boston, MA 02163
United States

Emanuele Colonnelli

University of Chicago - Booth School of Business ( email )


Benjamin Charles Iverson (Contact Author)

Brigham Young University ( email )

United States

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