Bankruptcy and Firm Dynamics: The Case of the Missing Firms

Author/Editor:

Jose Daniel Rodríguez-Delgado

Publication Date:

February 1, 2010

Electronic Access:

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Summary:

Financial frictions have been documented as an important determinant of firm dynamics. In this paper I model bankruptcy procedures, liquidation in particular, as an institutional feature that affects both sides of financial transactions. I construct a model of firm dynamics that generate endogenous borrowing limits and I find that a) inefficient bankruptcy procedures can have quantitatively important aggregate effects, but more importantly; b) that such effects would not be directly visible in the firms that industrial censuses and surveys focus on. I conclude that to capture the effects of the legal framework we need to look beyond the existing firms.

Series:

Working Paper No. 2010/041

Subject:

English

Publication Date:

February 1, 2010

ISBN/ISSN:

9781451962932/1018-5941

Stock No:

WPIEA2010041

Pages:

30

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