A profile of corporate exits and insolvencies

The COVID-19 pandemic had a substantial impact on business dynamics, leading to the temporary or permanent closure of many businesses. By contrast, corporate insolvency proposals and bankruptcies under the Bankruptcy and Insolvency Act declined in 2020. Using a newly developed linked database, this paper presents trends in exits, insolvency proposals and bankruptcies across business and financial characteristics among corporations from 2004 to 2020. Contrasting differences are found between exits and bankruptcies across firm sizes, industries, and provinces and territories. Small firms are more likely to exit than larger firms, while bankruptcy rates are lower among small firms compared with large firms. There are important differences across industries, with businesses in manufacturing having some of the lowest exit rates but relatively high bankruptcy rates. At the provincial and territorial levels, there is little variation in exit rates, but Quebec stands out for having low exit rates and the highest bankruptcy rates. In terms of financial characteristics, bankrupt businesses tend to have low levels of labour productivity, profitability and liquidity, and high levels of leverage. The results are similar for businesses that exit but far less pronounced, likely indicative of exits occurring for reasons other than business failure or financial distress. The results also suggest that bankrupt businesses became more vulnerable over time in terms of their financial ratios the year preceding bankruptcy.