Bankruptcy and Firm Dynamics: The Case of the Missing Firms

February 1, 2010

Preview Citation

Format: Chicago

Jose Daniel Rodríguez-Delgado. Bankruptcy and Firm Dynamics: The Case of the Missing Firms, (USA: International Monetary Fund, 2010) accessed December 26, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

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.

Subject: Asset prices, Legal support in revenue administration, Loans, Productivity, Self-employment

Keywords: Capital stock, Fixed cost, Interest rate, WP

Publication Details

Pages:

30
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2010/041
Stock No:

WPIEA2010041
ISBN:

9781451962932
ISSN:

1018-5941

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