Reconstructing The Reconstructions

Abstract: This paper investigates how effective the implementation of the new law on corporate reconstruction in Sweden has been. The law came into effect on the 1st of August, on request from an EU directive in 2019. The law aims to limit reconstruction proceedings to only firms that show an actual probability of survival and increase the percentage of administrators with adequate experience. To evaluate this, we ran a difference-in-difference regression on data of all reconstructions in Sweden, Norway and Finland ranging from 2020-05-11 to 2022-11-31, where Norway served as a control group and Finland as a second treatment group. Due to a small data set, we did not get significant results for the Swedish data. However, the data shows a drop when the law was implemented and a significant result for the Finnish law implementation. Therefore, we conclude that the law had a negative effect on the number of reconstructions. Moreover, we saw apparent changes in the selection of reconstruction administrators. Since the new law came into effect, all reconstruction administrators have had previous experience as bankruptcy administrators, which served as our proxy for having adequate experience. Therefore, we conclude that the law has been implemented successfully. However, more research needs to be conducted on changes in efficiency as that is too early to evaluate.