Implications of insolvency laws on firms' governance. An analysis from the relationships with creditors in France

Abstract

This paper aims at showing that ex post consequences of insolvency law are not the only one visible after a judge states that the amount of equity is not enough to repay all the debts. On the opposite, the judicial system that defines bankruptcy shapes the relationship between a firm and its stakeholders among which lenders play a specific role. Thus, the expectations of failure that are generally considered from a pure statistic point of view have to be enriched by the introduction of legal elements to understand fully the strategic behaviour of lenders and borrowers. Such is the point we want to present here taking the French case. Section 1 reminds that insolvency law is not only a tool implemented and improved to maximise creditors' wealth but also to protect others stakeholders. Having state this multiplicity of goals, section 2 shows the influence of insolvency laws on bank-borrowers relationships according to the institutional context. Section 3 considers insolvency law as a governance device that structures the need of information and behaviour of creditors in the firm's ordinary life. We conclude reminding that if that law matters in crisis but also as a milestone economic actors refer to determine their preferred situation.