Does the law alone explain the rise in bankruptcies in XIXth century France?
AbstractThis paper is the first result of a project aiming at understanding the history of bankruptcy law from an empirical economic perspective. By contrast with some proponents of "law and economics" (e.g. La Porta & alii, 1998), we consider that the impact of bankruptcy law on national economic performance cannot be deducted a priori from a simple description of the law, but can only be measured examining actual court practices and economic agents' behaviour. First of all, we believe that an empirical assessment of bankruptcy must start with a better understanding of what determines the proportions of debtor-creditors relationships which end-up in court (contrasting with those settled outside the courts, see Klapper, 2001). This simple question, which is not usually discussed, is a precondition for any interpretation of aggregate bankruptcy statistics. In this paper, we try to measure the impact of the changes in French bankruptcy law in the XIXth century focusing on the behaviour of economic agents as users of bankruptcy law for the sake of finding the best solution to their economic problems. Debtors used bankruptcy law in order to minimize their debt level when facing difficulties in servicing it, but they had to convince their creditors and/or the courts of their good faith, and faced the adverse effects of bankruptcy on their reputation and on the smooth functioning of their business. Creditors used bankruptcy law in order to force their debtors to pay, if they could. We use a new and still incomplete database constructed using both the yearly official statistics produced by the judicial system from 1830 on, and individual bankruptcy files from the Paris commercial court (Tribunal de commerce) archives in order to measure actual practices. The first part of the paper presents the evolution of French bankruptcy law during the XIXth century in its historical context. The second part briefly describes the theoretical model we use in order to understand the choices facing debtors and creditors in the face of financial distress. The last part proposes some major stylized facts concerning bankruptcies during that period and tries to understand their relationship with the legal evolution described before.
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Date of creation: Dec 2006
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history ; business law ; bankruptcy ; credit ; small and medium businesses ; commercial courts ; financial distress ; private settlement ; France ; 19th century ; code de commerce;
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