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Bankruptcy around the World: Explanations of Its Relative Use

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  • Stijn Claessens
  • Leora F. Klapper

Abstract

The law and finance literature highlights the role of investor rights in financial development, firm corporate governance, and financing patterns. For a panel of 35 countries, we investigate how bankruptcy use relates to countries' creditor rights and judicial efficiency. Bankruptcies are higher in countries with more creditor rights, except for a "no automatic stay on assets" provision. Higher judicial efficiency is associated with more bankruptcies and appears as a substitute with more creditor rights. Although only a first step, our findings suggest creditor rights are complex, balancing prioritization of claims, ex ante risk-taking incentives, and an efficient resolution of distressed firms. Copyright 2005, Oxford University Press.

Suggested Citation

  • Stijn Claessens & Leora F. Klapper, 2005. "Bankruptcy around the World: Explanations of Its Relative Use," American Law and Economics Review, Oxford University Press, vol. 7(1), pages 253-283.
  • Handle: RePEc:oup:amlawe:v:7:y:2005:i:1:p:253-283
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