Bankruptcy law and credit market: a general-equilibrium approach

Aloisio Araujo and Bruno Funchal ()

No 39, Fucape Working Papers from Fucape Business School

Abstract: This study has as its main objective to analyze the best bankruptcy procedure considering the conflict of interests between managers, secured creditors and trade creditors. Such trade-off is strictly connected with industry and countries characteristics, which is also relevant to the design of the bankruptcy law. Simulating a general-equilibrium model with incomplete marktes and bankruptcy, we show that for liquidation procedure that does not depreciates the failed assets too much, bankruptcy-liquidation produces better economic results for sectors intensive in physical capital. As the depreciation in liquidation increases and/or the industry sectors are less intensive in physical capital, the availability of reorganization produces better economic results. Using data of 44 countries, our results points that approximately 60% of the countries in the sample apply a procedure aligned with our suggestions.

Keywords: Bankruptcy; Legal System; Credit (search for similar items in EconPapers)
Pages: 19 pages
Date: 2013-03
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Published in Fucape Working Papers, Março 2013

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