Behavioural Economics in Insolvency Law (BE – IN): Rethinking Legal Incentives for Timely and Efficient Proceedings

ABOUT THE PROJECT

This research aims to provide a more comprehensive understanding of insolvency decision-making by integrating legal analysis, empirical studies, and behavioural insights. We will investigate why managers delay insolvency filings and how legal frameworks can be redesigned to ensure timely proceedings. Our approach will combine quantitative, qualitative, and experimental methodologies to bridge the gap between theory and practice. This study offers the first comprehensive integration of empirical, legal, and behavioral insights into insolvency decision-making, addressing long-standing gaps in theoretical and policy understanding. Within the rational choice framework, there can be two different sets of reasons for the delay of insolvency initiation: either (1) stakeholders are not aware of their obligations to initiate insolvency proceedings when the company becomes insolvent or (2) the incentives created by the legal system for them to do so are offset by other incentives.

This project will first reexamine the existing literature on the theory of creating incentives for managers to promptly initiate insolvency procedures. Specifically, the goal is to determine whether there are strong rational reasons, such as stigma, shame, cultural factors, or other aspects, which may contribute to managers’ reluctance to initiate insolvency proceedings. Additionally, the project aims to test the hypothesis that stakeholders are not aware of their obligations in the vicinity of insolvency. By systematically analyzing real-world insolvency cases, this research will produce actionable policy insights that can directly inform EU insolvency directives and national legal frameworks.

Project Type: Basic research project

Project Code (SICRIS): J5-70187

Duration: 1. 3. 2026 – 28. 2. 2029