Bankruptcy and cross-country differences in productivity

Julian Neira

Journal of Economic Behavior & Organization, 2019, vol. 157, issue C, 359-381

Abstract: 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 (i) shifting their portfolio of loans to smaller (less productive) firms and (ii) lending less. 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 around 30 percent.

Keywords: Aggregate productivity; Bankruptcy; Financial frictions; Misallocation; Small firms; Employment shares (search for similar items in EconPapers)
JEL-codes: D24 E02 E23 E44 O47 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Bankruptcy and Cross-Country Differences in Productivity (2016)
Working Paper: Bankruptcy and Cross-Country Differences in Productivity (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:157:y:2019:i:c:p:359-381

DOI: 10.1016/j.jebo.2017.07.011

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