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Bankruptcy and the difficulty of firing

Listed author(s):
  • Nicolae Stef
Registered author(s):

    Firms may use layoffs as an ex ante mechanism to avoid filing for bankruptcy. However, the national labor law may impose some restrictions that delay or hamper the firing decision of the employer. This study proposes a different legal pathway for policymakers whose goal is to reduce the use of bankruptcy without acting on the design of the bankruptcy law. Using a sample of 33 countries from 2007 to 2015, we show that the total amount of firing restrictions leads to more bankruptcies. The employer's legal obligation to notify a third party prior the dismissal of one employee tends to increase the number of bankruptcies. It is very likely that the employer's rescue strategy endures an intense ex post monitoring of the employment contracts and/or a strong legal opposition to the layoff decision from such third party. In addition, labor codes that apply priority rules in case of reemployment can increase the use of bankruptcy.

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    File URL: http://economix.fr/pdf/dt/2017/WP_EcoX_2017-26.pdf
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    Paper provided by University of Paris Nanterre, EconomiX in its series EconomiX Working Papers with number 2017-26.

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    Length: 21 pages
    Date of creation: 2017
    Handle: RePEc:drm:wpaper:2017-26
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