Bankruptcy and Firm Dynamics: The Case of the Missing Firms
February 1, 2010
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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.
Subject: Asset prices, Legal support in revenue administration, Loans, Productivity, Self-employment
Keywords: capital stock, fixed cost, interest rate, WP
Pages:
30
Volume:
2010
DOI:
Issue:
041
Series:
Working Paper No. 2010/041
Stock No:
WPIEA2010041
ISBN:
9781451962932
ISSN:
1018-5941
