Business closure and financial loss: Who foots the bill? Evidence from German small business closures
AbstractThis paper explores how different reasons for business closure impact the probability that financial loss will be suffered by creditors. Using German small business data, the study finds that business closure due to financial problems is strongly correlated with a likelihood of financial loss. By contrast, closures that take place based on expectations about a business' future development or because the owner takes a different earning opportunity are less likely to entail losses for creditors. The findings suggest that creditors are better off when entrepreneurs have a clear picture of their own abilities and shortcomings, and don't suffer from all-too-frequent over-optimism. Consequently, creditors stand to gain from helping clients to assess financial prospects. --
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Bibliographic InfoPaper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 10-026.
Date of creation: 2010
Date of revision:
Bankruptcy; business closure; financial loss;
Find related papers by JEL classification:
- G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
- L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
- M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-06-11 (All new papers)
- NEP-BEC-2010-06-11 (Business Economics)
- NEP-ENT-2010-06-11 (Entrepreneurship)
You can help add them by filling out this form.
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