Bankruptcy around the world - explanations of its relative use
The recent literature on law and finance has drawn attention to the importance of creditor rights in influencing the development of financial systems and in affecting firm corporate governance and financing patterns. Recent financial crises have also highlighted the importance of insolvency systems to resolve corporate sector financial distress. The literature and crises have emphasized the complex role of creditor rights, affecting not only the efficiency of ex-post resolution of distressed corporations, but also influencing ex-ante risk-taking incentives and an economy's degree of entrepreneurship more generally. The authors document how often bankruptcy is actually being used for a panel of 35 countries. Next they investigate the effects of specific design features of insolvency regimes in relation to the quality of the countries'overall judicial systems on the use of bankruptcy. The authors find, correcting for overall financial development and macroeconomic shocks, that bankruptcies are higher in Anglo-Saxon countries and in market-oriented financial systems characterized by weaker and multiple banking relationships. They also find that greater judicial efficiency is associated with more use of bankruptcy, but that the combination of stronger creditor rights with greater judicial efficiency leads to less use. The authors find that the presence of a"stay on assets"leads to fewer bankruptcies independent of the efficiency of the judicial system. These findings suggest that there are important incentive effects of insolvency systems encouraging less risky behavior and more out-of-court settlements.
|Date of creation:||31 Jul 2002|
|Date of revision:|
|Contact details of provider:|| Postal: 1818 H Street, N.W., Washington, DC 20433|
Phone: (202) 477-1234
Web page: http://www.worldbank.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Stulz, Rene M. & Williamson, Rohan, 2003.
"Culture, openness, and finance,"
Journal of Financial Economics,
Elsevier, vol. 70(3), pages 313-349, December.
- Loughran, Tim & Ritter, Jay R. & Rydqvist, Kristian, 1995.
"Initial public offerings: International insights,"
Pacific-Basin Finance Journal,
Elsevier, vol. 3(1), pages 139-140, May.
- Asli Demirgüç-Kunt & Vojislav Maksimovic, 1998. "Law, Finance, and Firm Growth," Journal of Finance, American Finance Association, vol. 53(6), pages 2107-2137, December.
- Rajan, Raghuram G & Zingales, Luigi, 1995.
" What Do We Know about Capital Structure? Some Evidence from International Data,"
Journal of Finance,
American Finance Association, vol. 50(5), pages 1421-60, December.
- Raghuram G. Rajan & Luigi Zingales, 1994. "What Do We Know About Capital Structure? Some Evidence from International Data," NBER Working Papers 4875, National Bureau of Economic Research, Inc.
- Ayyagari, Meghana & Beck, Thorsten & Demirguc-Kunt, Asl, 2003. "Small and medium enterprises across the globe : a new database," Policy Research Working Paper Series 3127, The World Bank.
- Oliver Hart, 2000.
"Different Approaches to Bankruptcy,"
Harvard Institute of Economic Research Working Papers
1903, Harvard - Institute of Economic Research.
- Daron Acemoglu & Simon Johnson & James A. Robinson, 2001.
"The Colonial Origins of Comparative Development: An Empirical Investigation,"
American Economic Review,
American Economic Association, vol. 91(5), pages 1369-1401, December.
- Daron Acemoglu & Simon Johnson & James A. Robinson, 2000. "The Colonial Origins of Comparative Development: An Empirical Investigation," NBER Working Papers 7771, National Bureau of Economic Research, Inc.
- Franco Modigliani & Enrico Perotti, 2000. "Security Markets versus Bank Finance: Legal Enforcement and Investors' Protection," International Review of Finance, International Review of Finance Ltd., vol. 1(2), pages 81-96.
- Beck, Thorsten & Levine, Ross & Loayza, Norman, 1999.
"Finance and the sources of growth,"
Policy Research Working Paper Series
2057, The World Bank.
- Erik Berglof & Ernst-Ludwig von Thadden, 1999.
"The Changing Corporate Governance Paradigm: Implications for Transition and Developing Countries,"
William Davidson Institute Working Papers Series
263, William Davidson Institute at the University of Michigan.
- Erik BERGLÖF & Ernst-Ludwig VON THADDEN, 1999. "The Changing Corporate Governance Paradigm : Implications for Transition and Developing Countries," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9912, Université de Lausanne, Faculté des HEC, DEEP.
- Gilson, Stuart C. & John, Kose & Lang, Larry H. P., 1990. "Troubled debt restructurings*1: An empirical study of private reorganization of firms in default," Journal of Financial Economics, Elsevier, vol. 27(2), pages 315-353, October.
- Claessens, Stijn & Djankov, Simeon & Klapper, Leora, 2003. "Resolution of corporate distress in East Asia," Journal of Empirical Finance, Elsevier, vol. 10(1-2), pages 199-216, February.
- Demirguc-Kunt, Asli & Levine, Ross, 1999. "Bank-based and market-based financial systems - cross-country comparisons," Policy Research Working Paper Series 2143, The World Bank.
When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:2865. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi)
If references are entirely missing, you can add them using this form.