ON THE DESIGN OF EFFICIENT PRIORITY RULES - SOME FINNISH EMPIRICAL EVIDENCE

Priority rules might affect creditors' decisions in liquidating bankruptcy, reorganizations as well as for healthy firms. The study reviews theories related to the effects of priorities and secured debt. It also includes empirical results, among others, from a study of the effects of the change of the Finnish priority rules in 1993. These results show that there were significant differences in payments to different classes of creditors before and after the reform, but total payments to creditors were not affected by the reform. The study also investigates whether creditors' securities affect their opinions on the possibilities to reorganize firms, and whether creditors' securities affect the likelihood of a successful reorganization.