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Use of formal insolvency procedure and judicial efficiency in Spain

Ewelina Mruk, Inmaculada Aguiar-Díaz and Maria Victoria Ruiz-Mallorquí ()
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Ewelina Mruk: University of Las Palmas de Gran Canaria
Inmaculada Aguiar-Díaz: University of Las Palmas de Gran Canaria
Maria Victoria Ruiz-Mallorquí: University of Las Palmas de Gran Canaria

European Journal of Law and Economics, 2019, vol. 47, issue 3, No 6, 435-470

Abstract: Abstract In the framework of law and finance literature, this study focuses on analysing the impact of judicial efficiency in firms’ decision on the use of court proceedings in the resolution of financial distress. The question as to whether the use of formal bankruptcy procedures can be related to efficiency in the implementation of legislation by the courts has been posed. The scarce empirical evidence has focused on the analysis of the impact of judicial efficiency at the international level, which implies assumption that the degree of efficiency is similar within each country. However, studies from Brazil and Spain have revealed the existence of differences among districts within the same country and its impact on different economic and financial aspects. Consequently, the work focuses on a single country allowing to isolate the effect of the content of the legislation from the efficiency of the application of these legal rules by the courts. The sample consists of 4160 unlisted firms in Spain experiencing financial difficulties, among which are companies that have and have not opted to use the formal bankruptcy proceedings. The results indicate that firms located in Spain’s autonomous communities that exhibit a higher efficiency of their judicial systems are more likely to use court proceedings to resolve financial distress.

Keywords: Bankruptcy resolution; Judicial efficiency; Formal proceedings; Spain (search for similar items in EconPapers)
JEL-codes: G33 K22 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s10657-019-09621-w

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