Are there alternatives to bankruptcy? A study of small business distress in Spain
Small businesses, the majority of Spanish firms, rarely file for formal bankruptcy when dealing with financial distress. This is why business bankruptcy rates in Spain are among the lowest in the world, even during the current economic crisis. To explain this fact we present the following hypothesis. Filing for bankruptcy in Spain is very costly for both small firms and their creditors. Due to this, the capital structure of micro firms is biased towards mortgage loans, as it allows them to avoid bankruptcy by carrying out debt enforcement via mortgage foreclosures, which are cheaper procedures than bankruptcy, in case of financial distress. The empirical tests of our hypothesis consist of comparing the observed choices (choice of capital structure, choice between bankruptcy and mortgage) of Spanish firms with those of firms from countries (France and the UK) where their bankruptcy systems are more efficient and their laws do not incentivise them to bias their capital structure towards mortgage loans. Our findings corroborate the proposed hypothesis. As bankruptcy procedures and mortgage foreclosures are not perfect substitutes—i.e., they do not suit well the same type of firms- the underutilization of one of them—reflected in low bankruptcy rates- may lead to efficiency losses. Copyright The Author(s) 2014
Volume (Year): 5 (2014)
Issue (Month): 2 (August)
|Contact details of provider:|| Web page: http://www.springer.com|
Postal:Universidad del País Vasco; DFAE II; Avenida Lehendakari Aguirre, 83; 48015 Bilbao; Spain
Phone: +34 94 6013783
Fax: + 34 94 6013774
Web page: http://www.asesec.org/index.php?idioma=en
More information through EDIRC
|Order Information:||Web: http://www.springer.com/economics/journal/13209|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Miguel García-Posada & Juan S. Mora-Sanguinetti, 2012. "Why do spanish firms rarely use the bankruptcy system? The role of the mortgage institution," Working Papers 1234, Banco de España;Working Papers Homepage.
- Samuel Pinto Ribeiro & Stefano Menghinello & Koen De Backer, 2010. "The OECD ORBIS Database: Responding to the Need for Firm-Level Micro-Data in the OECD," OECD Statistics Working Papers 2010/1, OECD Publishing.
- Djankov, Simeon & McLiesh, Caralee & Shleifer, Andrei, 2007.
"Private credit in 129 countries,"
Journal of Financial Economics,
Elsevier, vol. 84(2), pages 299-329, May.
- Simeon Djankov & Caralee McLiesh & Andrei Shleifer, 2005. "Private Credit in 129 Countries," NBER Working Papers 11078, National Bureau of Economic Research, Inc.
- Shleifer, Andrei & Djankov, Simeon & McLiesh, Caralee, 2007. "Private credit in 129 countries?," Scholarly Articles 27867134, Harvard University Department of Economics.
- Régis Blazy & Bertrand Chopard & Eric Langlais & Ydriss Ziane, 2013. "Personal Bankruptcy Law, Fresh Starts, and Judicial Practice," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 169(4), pages 680-702, December.
- Régis Blazy & Bertrand Chopard & Eric Langlais & Ydriss Ziane, 2011. "Personal Bankruptcy Law, Fresh Starts, and Judicial Practice," EconomiX Working Papers 2011-15, University of Paris Nanterre, EconomiX.
- Régis Blazy & Bertrand Chopard & Eric Langlais & Ydriss Ziane, 2013. "Personal bankruptcy law, fresh starts and judicial practice," Post-Print hal-01385890, HAL.
- Hayong Yun, 2009. "Matching Bankruptcy Laws to Legal Environments," Journal of Law, Economics and Organization, Oxford University Press, vol. 25(1), pages 2-30, May.
- John Armour, 2001. "The Law and Economics of Corporate Insolvency: A Review," Working Papers wp197, Centre for Business Research, University of Cambridge.
- Berger, Allen N & Udell, Gregory F, 1995. "Relationship Lending and Lines of Credit in Small Firm Finance," The Journal of Business, University of Chicago Press, vol. 68(3), pages 351-381, July.
- Nicola Gennaioli & Stefano Rossi, 2013. "Contractual Resolutions of Financial Distress," Review of Financial Studies, Society for Financial Studies, vol. 26(3), pages 602-634.
- Nicola Gennaioli & Stefano Rossi, 2006. "Contractual resolutions of financial distress," Economics Working Papers 1316, Department of Economics and Business, Universitat Pompeu Fabra, revised May 2012.
- Nicola Gennaioli & Stefano Rossi, 2012. "Contractual Resolutions of Financial Distress," Working Papers 651, Barcelona Graduate School of Economics.
- Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
- Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, "undated". "Law and Finance," Working Paper 19451, Harvard University OpenScholar.
- 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.
- 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.
- La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert W., 1998. "Law and Finance," Scholarly Articles 3451310, Harvard University Department of Economics.
- Marco Celentani & Miguel García-Posada & Fernando Gómez, 2010. "The Spanish Business Bankruptcy Puzzle and the Crisis," Working Papers 2010-11, FEDEA.
- Cameron,A. Colin & Trivedi,Pravin K., 2005. "Microeconometrics," Cambridge Books, Cambridge University Press, number 9780521848053, December.
- Acharya, Viral V. & Sundaram, Rangarajan K. & John, Kose, 2011. "Cross-country variations in capital structures: The role of bankruptcy codes," Journal of Financial Intermediation, Elsevier, vol. 20(1), pages 25-54, January.
- Acharya, Viral V & John, Kose & Sundaram, Rangarajan K, 2005. "Cross-Country Variations in Capital Structures: The Role of Bankruptcy Codes," CEPR Discussion Papers 4916, C.E.P.R. Discussion Papers.
- Césaire A. Meh & Yaz Terajima, 2008. "Unsecured Debt, Consumer Bankruptcy, and Small Business," Staff Working Papers 08-5, Bank of Canada.
- Grice, John Stephen & Ingram, Robert W., 2001. "Tests of the generalizability of Altman's bankruptcy prediction model," Journal of Business Research, Elsevier, vol. 54(1), pages 53-61, October.
- Bolton, Patrick & Scharfstein, David S, 1996. "Optimal Debt Structure and the Number of Creditors," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 1-25, February.
- Daniela Fabbri, 2010. "Law Enforcement and Firm Financing: Theory and Evidence," Journal of the European Economic Association, MIT Press, vol. 8(4), pages 776-816, June.
- Daniela Fabbri, 2010. "Law Enforcement and Firm Financing: Theory and Evidence," Journal of the European Economic Association, European Economic Association, vol. 8(4), pages 776-816, June.
- Jeremy Berkowitz & Michelle J. White, 2004. "Bankruptcy and Small Firms' Access to Credit," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 69-84, Spring.
- Julian Franks & Oren Sussman, 2005. "Financial Distress and Bank Restructuring of Small to Medium Size UK Companies," Review of Finance, Springer, vol. 9(1), pages 65-96, March.
- Gilson, Stuart C. & John, Kose & Lang, Larry H. P., 1990. "Troubled debt restructurings*1: An empirical study of private reorganization of firms in default," Journal of Financial Economics, Elsevier, vol. 27(2), pages 315-353, October.
- Sergei A. Davydenko & Julian R. Franks, 2008. "Do Bankruptcy Codes Matter? A Study of Defaults in France, Germany, and the U.K," Journal of Finance, American Finance Association, vol. 63(2), pages 565-608, April.
- Petersen, Mitchell A & Rajan, Raghuram G, 1994. " The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March. Full references (including those not matched with items on IDEAS)