Bankruptcy and Cross-Country Differences in Productivity

Julian Neira

No 228, 2016 Meeting Papers from Society for Economic Dynamics

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%.

Date: 2016
New Economics Papers: this item is included in nep-dge, nep-eec and nep-eff
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Related works:
Journal Article: Bankruptcy and cross-country differences in productivity (2019)
Working Paper: Bankruptcy and Cross-Country Differences in Productivity (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed016:228

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