Bankruptcy and Cross-Country Differences in Productivity

Julian Neira

No 1511, Discussion Papers from University of Exeter, Department of Economics

Abstract: Using a harmonized dataset constructed from national statistical agencies’ data for a sample of OECD countries, I document a systematic positive relationship between i) aggregate productivity, ii) the employment share by large firms and iii) the proportion of large firms in the economy. I propose that differences in bankruptcy procedures can explain this relationship. In a model of financial intermediation and informational frictions, I show that as bankruptcy procedures worsen — measured by the amount a lender can recover from bankrupt borrowers — lenders respond by shifting their portfolio of loans to smaller (less productive) enterprises. This finding is supported by empirical evidence: across countries, efficient bankruptcy procedures are associated with a higher proportion of new bank loans allocated to large firms. In the model, moving the level of recovery rate from the U.S. level to that of the lowest recovery rate country in the OECD sample reduces TFP by 30%.

Keywords: Aggregate Productivity; Bankruptcy; Financial Frictions; Small Firms; Employment Shares; Firm-Size Distribution; OECD; Misallocation. (search for similar items in EconPapers)
JEL-codes: D24 E02 E23 E44 O47 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-eff and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://exetereconomics.github.io/RePEc/dpapers/DP1511.pdf (application/pdf)

Related works:
Journal Article: Bankruptcy and cross-country differences in productivity (2019)
Working Paper: Bankruptcy and Cross-Country Differences in Productivity (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:exe:wpaper:1511

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