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Bankruptcy resolution capacity and regional economic fluctuations

Author

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  • Uluc Aysun

    (University of Central Florida, Orlando, FL)

  • Raman Khaddaria

    (University of Central Florida, Orlando, FL)

Abstract

In this paper we uncover a relationship between regional economic fluctuations and bankruptcy resolution capacity and predict that its direction depends on the cyclicality of bankruptcy. If bankruptcy is countercyclical (procyclical), we predict that economic fluctuations should be more(less) severe in regions with lower judicial capacity. This is because in these regions, bank lending is more sensitive to judicial capacity and shocks that have a countercyclical (procyclical) effect on bankruptcy are amplified (mitigated) by more. We find evidence showing that bankruptcy is countercyclical and that in US states with lower judicial capacity, economic fluctuations are more severe.

Suggested Citation

  • Uluc Aysun & Raman Khaddaria, 2012. "Bankruptcy resolution capacity and regional economic fluctuations," Working Papers 2012-01, University of Central Florida, Department of Economics.
    • Handle: RePEc:cfl:wpaper:2012-01
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    More about this item

    Keywords

    judicial capacity; regional economic fluctuations; bankruptcy;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • K35 - Law and Economics - - Other Substantive Areas of Law - - - Personal Bankruptcy Law
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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