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Does Sweden Have Too Many or Too Few Bankruptcies Compared to EU Countries, Norway and the USA?

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  • Buttwill, Klas

    ()
    (Department of Economics)

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    Abstract

    The main purpose with this paper is to compare the frequency of liquidation bankruptcies in Sweden with the frequency of bankruptcies in countries (Germany, U.S., Finland, Norway, U.K. and Denmark) that have a similar economic structure and there by are we able to investigate the legal influence on bankruptcies and costs associated with bankruptcies. When one judges the frequency of bankruptcy in different countries, the main issue is to decide which frequency of bankruptcy is the optimal one (the efficient one). A country is classified as having “too many” bankruptcies when firms that have a positive net present value (in financial distress but not in economic distress) are closed or if many of the bankruptcies are due economically related crimes. A country is classified as having “too few” bankruptcies when firms that are in both in financial and economic distress continues to operate. Relating bankruptcies to number of employees in the respective country makes it possible to compare frequency of bankruptcies between countries. We compare frequency of bankruptcy between countries for the period 1985 to 1996. Sweden, Norway and Finland have on average a significant higher frequency of bankruptcies than the other countries. In Germany, Finland, Great Britain and Sweden is the use of a reorganisation procedure not a real option to the liquidation procedure, in contrast to U.S. The construction industry and the industry wholesale and retail, repairs, Hotels and restaurants are the industries in every country that either has the highest frequency of bankruptcy or belongs to the industries with the highest frequency of bankruptcy. In Sweden there are four years that deviate in the period of investigation (both in total number of bankruptcies but also with respect to the individual industry bankruptcies) due to an extremely high frequency of bankruptcies (1991 to 1994) and this is the case also for the other countries (at least for the total number of bankruptcies) except for Germany and U.S. Norway is the country with the highest proportion of bankruptcy firms with no employees in relation to total number of bankruptcies. There is no indication that shell-companies are the driving force behind the frequency of bankruptcies in Sweden during the time period investigated. In Sweden, for the period 1991 to 1994, there is an indication that companies ended up earlier than normally in liquidation bankruptcy and also that these companies are in better financial condition than normally. For Sweden, it seems as though the banks do not explicitly file for bankruptcy.

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    Bibliographic Info

    Paper provided by The Ratio Institute in its series Ratio Working Papers with number 56.

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    Length: 67 pages
    Date of creation: 18 Nov 2004
    Date of revision:
    Handle: RePEc:hhs:ratioi:0056

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    Postal: The Ratio Institute, P.O. Box 5095, SE-102 42 Stockholm, Sweden
    Phone: 08-441 59 00
    Fax: 08-441 59 29
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    Web page: http://www.ratio.se/
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    Related research

    Keywords: Insolvency procedures; Bankruptcy; Reorganisation; Financial crisis; Economic structure;

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    References

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    1. Rafael LaPorta & Florencio Lopez de-Silanes & Andrei Shleifer & Robert W. Vishny, 1996. "Law and Finance," Harvard Institute of Economic Research Working Papers 1768, Harvard - Institute of Economic Research.
      • Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1996. "Law and Finance," NBER Working Papers 5661, National Bureau of Economic Research, Inc.
      • La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert W., 1998. "Law and Finance," Scholarly Articles 3451310, Harvard University Department of Economics.
      • Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, . "Law and Finance," Working Paper 19451, Harvard University OpenScholar.
    2. Clas Wihlborg & Shubhashis Gangopadhyay, 2001. "Infrastructure Requirements in the Area of Bankruptcy Law," Center for Financial Institutions Working Papers 01-09, Wharton School Center for Financial Institutions, University of Pennsylvania.
    3. Thorburn, Karin S., 2000. "Bankruptcy auctions: costs, debt recovery, and firm survival," Journal of Financial Economics, Elsevier, vol. 58(3), pages 337-368, December.
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