Essays in Corporate and Consumer Finance

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Essays in Corporate and Consumer Finance

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Title: Essays in Corporate and Consumer Finance
Author: Iverson, Benjamin Charles
Citation: Iverson, Benjamin Charles. 2013. Essays in Corporate and Consumer Finance. Doctoral dissertation, Harvard University.
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Abstract: The first essay tests whether Chapter 11 restructuring outcomes are affected by time constraints in busy bankruptcy courts. Using the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act in 2005 as an exogenous shock to court caseloads, I estimate the impact of bankruptcy caseload changes on the outcomes of firms in Chapter 11. I find that as bankruptcy judges become busier they tend to allow more firms to reorganize. Firms that reorganize in busy courts spend longer in bankruptcy, while firms that are dismissed from busy courts are more likely to re-file for bankruptcy within three years of their original filing. In addition, busy courts impose costs on local banks, which report higher charge-offs on business lending when caseload increases. Using novel data that has complete coverage of claims for 136 Chapter 11 bankruptcy protection filings and that includes detailed information on claims transfers, in the second essay we provide the first empirical insight on how a firm's ownership changes during the bankruptcy process and how these changes impact bankruptcy outcomes. Pre-bankruptcy ownership concentration is important for the coordination of a prearranged bankruptcy filing and is associated with a faster bankruptcy resolution and a higher likelihood of a successful reorganization. However, as the trading of claims in bankruptcy concentrates ownership further, the probability of liquidation increases and recovery rates decrease. The third essay studies whether prize-linked savings (PLS) accounts, which offer random, lottery-like payouts to account holders in lieu of risk-free interest, can aid individuals in increasing savings levels by adding the chance to "win big." Using micro-level data, we show that PLS is attractive to a broad group of individuals across all age, race, and income levels. We find that financially constrained individuals and those with no other deposit accounts are particularly likely to open a PLS account. Participants in the PLS program increased their total savings on average by 1.1% of annual income, a 31% increase form the mean level of savings. Deposits in PLS do not cannibalize savings in standard savings products. Instead, PLS appears to act as a substitute for lottery gambling.
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