17.06.2021

Do Lawyers Exploit Legal Networks? Evidence from Corporate Bankruptcies

We exploit a setting where lawyers are selected before the assignment of a judge and find that large Chapter 11 bankruptcy filings resolve 17%--25% faster when at least one lead counsel lawyer for the debtor has a connection to the judge. The most effective connections arise through previous in-court interactions. Connected cases are more likely to emerge, have lower recidivism, lower legal and professional fees, and their junior creditors have higher recovery rates. Exploring potential mechanisms, we find connected lawyers file fewer motions and plans and their motions are less likely to be contested or denied. The results suggest that connected lawyers use knowledge of judges' discretion to improve the speed of the bankruptcy processes.

GOYAL, Vidhan K

Chair Professor
Finance