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 al...
| Main Authors: | , |
|---|---|
| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, D.C.
2013
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2002/07/1963446/bankruptcy-around-world-explanations-relative-use http://hdl.handle.net/10986/14259 |
| Summary: | 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. |
|---|