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Are there alternatives to bankruptcy? a study of small business distress in Spain

  • Miguel García-Posada

    (Banco de España-Eurosystem)

  • Juan S. Mora-Sanguinetti

    (Banco de España-Eurosystem)

Small businesses, the majority of Spanish fi rms, rarely fi le for formal bankruptcy, and this has been the case even during the current economic crisis. This suggests that bankruptcy law has a limited role to play in the distress of small fi rms. We propose an explanation based on two premises: (i) bankruptcy procedures are more costly and drawn out than the main alternative procedure, the mortgage foreclosure; (ii) personal bankruptcy law is unattractive to the individual debtor. Empirical analyses on a large micro data sample of Spanish, French and UK fi rms corroborate our hypothesis. It is important to note that these results are based on data that do not yet capture the impact of recent reforms of the Spanish insolvency framework.

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/13/Fich/dt1315e.pdf
File Function: First version, October 2013
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Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 1315.

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Length: 55 pages
Date of creation: Oct 2013
Date of revision:
Handle: RePEc:bde:wpaper:1315
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