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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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

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. 10/41

Subject:

English

Publication Date:

February 1, 2010

ISBN/ISSN:

9781451962932/1018-5941

Stock No:

WPIEA2010041

Format:

Paper

Pages:

30

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