Abstract
The aim of this paper is to evaluate the impact of the 2010 French judicial reform of commercial courts on firms’ financial bankruptcy rate at the municipality level. The research is based on a panel dataset containing microdata between 2004 and 2015, taken from Banque de France and the French National Institute of Statistics. We use a difference-in-differences analysis comparing the economic behaviour of firms in municipalities where the reform was implemented with those where it was not before and after the reform. The econometric findings indicate that municipalities that changed commercial courts because of the reform experienced a decrease in firms’ bankruptcy rate but that changing the judicial map did not impact the arbitrage between liquidation and reorganisation of the insolvent companies. Some policy implications conclude the work.
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Source: our elaborations on data taken from Ministry of Justice
Source: Creditreform (2018)
Source: Our elaborations on Banque de France data
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Notes
Under French law, the control by the trustee applies retroactively and begins several months before the company files for bankruptcy, this lapse of time being named the suspect period.
In France, commercial courts are run only by businessmen and businesswomen coming from all sectors of the economy. Commercial judges are i) volunteers, ii) elected by regional colleges of so called ‘consular electors’, and iii) work for free: no salaries, no expense accounts, only a small tax deduction. See Coutant (1998) for details.
Among many reports, see Assemblée nationale (1998) Rapport de la Commission d’enquête sur l’activité et le fonctionnement des tribunaux de commerce (http://www.assemblee-nationale.fr/11/dossiers/Tribunaux-de-commerce.asp); Inspection Générale des Services Judiciaires—Direction des Services Judiciaires (2004) Création du Conseil National des Tribunaux de Commerce, Ministère de la Justice (http://www.justice.gouv.fr/publications-10047/rapports-thematiques-10049/creation-du-conseil-national-des-tribunaux-de-commerce-11932.html).
Ministry of Justice, Références statistiques Justice, année 2015, Chapter 12: Activité civile et commerciale des juridictions.
Sénat, Projet de loi relatif aux tribunaux de commerce, Rapport n° 178 (2001–2002) de M. Paul GIROD, fait au nom de la commission des lois, déposé le 23 janvier 2002 Available on line: https://www.senat.fr/rap/l01-178/l01-1785.html.
-Décret n° 2008–146 du 15 février 2008 modifiant le siège et le ressort des tribunaux de commerce and Décret n° 2009–1629 du 23 décembre 2009 modifiant le siège et le ressort des tribunaux de commerce.
Cour des comptes, 2015, Rapport Public Annuel 2015. Available on line: https://www.ccomptes.fr/sites/default/files/EzPublish/122-RPA2015-reforme-carte-judiciaire.pdf).
If the treatment is assigned based on expected change, also the fixed-effect panel model does not eliminate bias due to unobserved factors. More complicated models should be employed, such as ‘instrumental variables’ or ‘regression discontinuity models’.
The number of municipalities available in our dataset change year-by-year for two main reasons: the availability of data in Banque de France dataset and the presence of missing in the independent variables. Supplementary information is available under request.
Since its creation in 2007, however, the safeguard procedure is still only rarely used. Preinsolvency proceedings include mandat ad hoc and conciliation. Both essentially consist of a mediation conducted under the authority of a mediator appointed by the court upon request of the company, to help it reach an agreement with its creditors, in particular by reducing or rescheduling its indebtedness. Agreements reached through these proceedings are nonbinding on third parties, and the court-appointed mediator has no authority to force the parties to accept an agreement.
The areas of the country with professional judges coincide with the North Eastern Region, corresponding to the departments’ codes 57, 67 and 68.
The results of the additional Cerulli test are available upon request.
With a fixed effects model, our treatment variable (Treatedi) is collinear with the fixed effect: this is because each unit in our study (municipality) is either in the treatment group or not and that is the same for every observation for that unit. Note that, although Stata omits the variable Treatedi because of collinearity, the model is still valid and the coefficient of the interaction is still interpretable as the DID estimator of the intervention effect.
We used the psmatch2 Stata command, a module to perform propensity score matching.
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Acknowledgements
We are grateful to Stéphane Esquerré for providing us with the list of municipalities depending on the commercial courts before and after the reform. We are also very grateful to the team of the OpenDataRoom service (Banque de France) for their precious help in the data collection process. Finally, we thank the participants of the 4th Law and Economic Policy International Workshop, held on 12 & 13 December 2019 at University Paris Nanterre, for their helpful comments and suggestions.
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Appendix
Appendix
Figure 4 shows the temporal evolution of the annual mean of the outcome variables (bankruptcy rate, liquidation rate and reorganisations over liquidations) separately for the treated and control groups of municipalities.
Source: Our elaborations. Note: Bankruptcy rates have been multiplied by 100 for visual convenience
Plot of group means over years.
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Arcuri, G., Levratto, N. & Succurro, M. Does commercial court organisation affect firms’ bankruptcy rate? evidence from the french judicial reform. Eur J Law Econ 55, 573–601 (2023). https://doi.org/10.1007/s10657-023-09765-w
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DOI: https://doi.org/10.1007/s10657-023-09765-w