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Bankruptcy and Cross-Country Differences in Productivity

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  • Julian Neira

    (University of Exeter)

Abstract

Using a harmonized dataset constructed from national statistical agencies' data for a sample of OECD countries, I document a systematic positive relationship between i) aggregate productivity, ii) the employment share by large firms and iii) the proportion of large firms in the economy. I propose that differences in bankruptcy procedures can explain this relationship. In a model of financial intermediation and informational frictions, I show that as bankruptcy procedures worsen --- measured by the amount a lender can recover from bankrupt borrowers --- lenders respond by shifting their portfolio of loans to smaller (less productive) enterprises. This finding is supported by empirical evidence: across countries, efficient bankruptcy procedures are associated with a higher proportion of new bank loans allocated to large firms. In the model, moving the level of recovery rate from the U.S. level to that of the lowest recovery rate country in the OECD sample reduces TFP by 30%.

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  • Julian Neira, 2016. "Bankruptcy and Cross-Country Differences in Productivity," 2016 Meeting Papers 228, Society for Economic Dynamics.
  • Handle: RePEc:red:sed016:228
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    Cited by:

    1. Jeremy Greenwood & Juan Sanchez & Cheng Wang, 2013. "Quantifying the Impact of Financial Development on Economic Development," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 194-215, January.
    2. World Bank, 2019. "Doing Business 2019," World Bank Publications - Books, The World Bank Group, number 30438, December.
    3. Bose, Udichibarna & Filomeni, Stefano & Mallick, Sushanta, 2021. "Does bankruptcy law improve the fate of distressed firms? The role of credit channels," Journal of Corporate Finance, Elsevier, vol. 68(C).
    4. Nasir, Muhammad Ali & Wu, Junjie & Howes, Cameron & Ripley, Helen, 2022. "Asymmetric nexus between wages and productivity in the context of the global financial crisis," Journal of Economic Behavior & Organization, Elsevier, vol. 198(C), pages 164-175.
    5. Anurag K. Agarwal & Abhiman Das & Joshy Jacob & Sanket Mohapatra, 2020. "Introduction to the Special Issue on ‘Financial Distress, Bankruptcy, and Corporate Finance’," Vikalpa: The Journal for Decision Makers, , vol. 45(2), pages 61-68, June.
    6. N.V.V. Satyanarayana Puchakayala & Ramanujam Veluchamy, 2023. "Optimal bankruptcy regime: a literature review," Future Business Journal, Springer, vol. 9(1), pages 1-10, December.
    7. M. S. Sahoo & Anuradha Guru, 2020. "Indian Insolvency Law," Vikalpa: The Journal for Decision Makers, , vol. 45(2), pages 69-78, June.

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    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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