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Bankruptcy and Firm Dynamics: The Case of the Missing Firms

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  • Jose Daniel Rodríguez-Delgado

Abstract

Financial frictions have been documented as an important determinant of firm dynamics. In this paper I model bankruptcy procedures, liquidation in particular, as an institutional feature that affects both sides of financial transactions. I construct a model of firm dynamics that generate endogenous borrowing limits and I find that a) inefficient bankruptcy procedures can have quantitatively important aggregate effects, but more importantly; b) that such effects would not be directly visible in the firms that industrial censuses and surveys focus on. I conclude that to capture the effects of the legal framework we need to look beyond the existing firms.

Suggested Citation

  • Jose Daniel Rodríguez-Delgado, 2010. "Bankruptcy and Firm Dynamics: The Case of the Missing Firms," IMF Working Papers 2010/041, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2010/041
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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=23634
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    Cited by:

    1. Cesar Tamayo, 2017. "Bankruptcy Choice with Endogenous Financial Constraints," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 225-242, October.
    2. Neira, Julian, 2019. "Bankruptcy and cross-country differences in productivity," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 359-381.

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