A study on the current state and the effectiveness of the rehabilitation procedures-Focusing on the inspectors strategic optimism-

Abstract

The rehabilitation procedure is one of the collective and compulsory decision-making systems, where the creditors make their decisions whether to agree or not on the debtors repayment plans. Because the repayment plans are built on the debtors future operating values, the fair and objective valuations for the debtors future businesses play a key role for the success of the rehabilitation procedures. The inspectors are in charge of these crucial tasks in the rehabilitation procedures. The purpose of this paper is to examine the rehabilitation procedures effectiveness within the context of the inspectors valuation reports. This study reveals that the inspectors valuations are severely biased to the optimistic conclusion that most of the depressed debtors going-concern values surpass their liquidation values. To be specific, the frequencies of the going-concern value-winning reports are positively related with those of the abolitions-after-confirmations. This result is commonly shared by both the perspective of bankruptcy courts and that of industry classes, indicating that the inspectors optimisms are intentional or strategic in pursuit of anything but the creditors wealth maximization. This paper concludes that the inspectors are strategically optimistic in valuations of the debtors future businesses in an attempt to maximize the inspectors own utilities, at the cost of the inspectors legal duty of staying put fair and objective in the rehabilitation procedures.