Bankruptcy and Firm Dynamics
AbstractFinancial 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 InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 10/41.
Date of creation: 01 Feb 2010
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-03-28 (All new papers)
- NEP-BEC-2010-03-28 (Business Economics)
- NEP-DGE-2010-03-28 (Dynamic General Equilibrium)
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