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Bankruptcy and Firm Dynamics

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  • Jose Daniel Rodríguez-Delgado

Abstract

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.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/41.

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Length: 30
Date of creation: 01 Feb 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/41

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Related research

Keywords: Bankruptcy; Borrowing; Economic models; External debt; Private investment; bond; probability; equation; bond price; statistics; bond prices; calibration; correlation; autocorrelation; survey; financial contracts; stochastic process; statistic; surveys; standard deviation; equations; probabilities; asset recovery; correlations; financial markets; computations; parameter value; markov process; financial instruments; markov chain; canonical analysis; statistical analysis; financial intermediation; stock of capital; financial economics; cross-country variation; cash flows;

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