Bankruptcy and Firm Dynamics: The Case of the Missing Firms
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Summary:
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.
Series:
Working Paper No. 2010/041
Subject:
Asset prices Legal support in revenue administration Loans Productivity Self-employment
English
Publication Date:
February 1, 2010
ISBN/ISSN:
9781451962932/1018-5941
Stock No:
WPIEA2010041
Pages:
30
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