Bankruptcy and Firm Dynamics: The Case of the Missing Firms

Jose Daniel Rodríguez-Delgado

No 2010/041, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; interest rate; capital stock; fixed cost (search for similar items in EconPapers)
Pages: 30
Date: 2010-02-01
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Citations: View citations in EconPapers (5)

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