Bankruptcy delay and firms’ dynamics

  • Alessandro Melcarne
  • Giovanni B. Ramello


The present paper explores the link between bankruptcy law and firms’ dynamics, focusing on Italy as a case study. Relying on a previous literature dealing with the concept of entrepreneurship “friendly” bankruptcy law, we stress the idea that bankruptcy institutions, although connected to a painful event for firms, might still yield beneficial consequences on a societal level. In particular, we find evidence that quicker judicial resolutions of liquidation bankruptcies have an impact on firms’ entry and exit rates in Italy, by reducing the indirect costs that a bankrupt firm must undergo and allowing a quicker reallocation of assets towards more efficient destinations. Such effect is related with firms’ organizational structure and size.


Bankruptcy Judicial delay Entrepreneurship Firms’ dynamics 

JEL classification

D23 K22 K41 L26 



We are grateful for the useful comments and suggestions provided by David Audretsch, Nadine Levratto, Johan Eklund, Juan Mora-Sanguinetti, Fernando Gomez-Pomar, and participants at seminars in the University of Paris Nanterre, Södertön University, AEDE, Economic Analysis of Litigation Workshop, SIE, Bankruptcy Institutions, Corporate Insolvency and Entrepreneurship Workshop, SIDE, SIEPI and the French Ministry of Finance. This research has been supported by the Compagnia di San Paolo. The usual disclaimer applies.


  1. Acs, Z.J., & Mueller, P. (2007). Employment effects of business dynamics: mice, Gazelles and Elephants. Small Business Economics, 30(1), 85–100.CrossRefGoogle Scholar
  2. Acs, Z.J., & Szerb, L. (2006). Entrepreneurship, economic growth and public policy. Small Business Economics, 28(2-3), 109–122.CrossRefGoogle Scholar
  3. Armour, J., & Cumming, D. (2008). Bankruptcy law and entrepreneurship. American Law and Economics Review, 10(2), 303–350.CrossRefGoogle Scholar
  4. Audretsch, D. (1991). New-Firm Survival and the technological regime. The Review of Economics and Statistics, 73(3), 441–50.CrossRefGoogle Scholar
  5. Ayotte, K. (2007). Bankruptcy and entrepreneurship: the value of a fresh start. Journal of Law, Economics, and Organization, 23(1), 161–185.CrossRefGoogle Scholar
  6. Baumol, W.J. (1990). Entrepreneurship : productive, unproductive, and destructive. Journal of Business Venturing, 98(5), 3–22.Google Scholar
  7. Bebchuk, L.A. (2000). Using options to divide value in corporate bankruptcy. European Economic Review, 44(4–6), 829–843.CrossRefGoogle Scholar
  8. Bris, A., Welch, I., Zhu, N. (2006). The costs of bankruptcy: chapter 7 liquidation versus chapter 11 reorganization. Journal of Finance, 61(3), 1253–1303.CrossRefGoogle Scholar
  9. Buonanno, P., & Galizzi, M.M. (2014). Advocatus, et non Latro? Testing the Excess of Litigation in the Italian Courts of Justice. Review of Law & Economics, 10(3), 285–322.CrossRefGoogle Scholar
  10. Chemin, M. (2009). The impact of the judiciary on entrepreneurship: evaluation of Pakistan’s “Access to Justice Programme”. Journal of Public Economics, 93(1-2), 114–125.CrossRefGoogle Scholar
  11. Chowdhury, F., Terjesen, S., Audretsch, D. (2015). Varieties of entrepreneurship: institutional drivers across entrepreneurial activity and country. European Journal of Law and Economics, 40(1), 121–148.CrossRefGoogle Scholar
  12. Claessens, S., & Klapper, L.F. (2005). Bankruptcy around the world: explanations of its relative use. American Law and Economics Review, 7(1), 253–283.CrossRefGoogle Scholar
  13. Djankov, S., La Porta, R., Lopez-de silanes, F., Shleifer, A. (2002). The regulation of entry. The Quarterly Journal of Economics, 117(1), 1–37.CrossRefGoogle Scholar
  14. Eger, T. (2001). Bankruptcy regulations and the new german insolvency law from an economic point of view. European Journal of Law and Economics, 11(1), 29–46.CrossRefGoogle Scholar
  15. Eidenmüller, H. (2009). Abuse of law in the context of european insolvency law. European Company and Financial Law Review, 6(1), 1–28.CrossRefGoogle Scholar
  16. Estrin, S., Mickiewicz, T., Rebmann, A. (2017). Prospect theory and the effects of bankruptcy laws on entrepreneurial aspirations. Small Business Economics, 48(4), 977–997.Google Scholar
  17. Fan, W., & White, M. (2003). Personal bankruptcy and the level of entrepreneurial activity. Journal of Law and Economics, 46(2), 543–567.CrossRefGoogle Scholar
  18. Feldman, M.P., & Audretsch, D. (1999). Innovation in cities:. European Economic Review, 43(2), 409–429.CrossRefGoogle Scholar
  19. Fossen, F.M. (2014). Personal bankruptcy law, wealth, and entrepreneurship–evidence from the introduction of a “Fresh Start” policy. American Law and Economics Review, 16(1), 269–312.CrossRefGoogle Scholar
  20. Fritsch, M., & Schroeter, A. (2011). Why does the effect of new business formation differ across regions? Small Business Economics, 36(4), 383–400.CrossRefGoogle Scholar
  21. García-Posada, M., & Mora-Sanguinetti, J.S. (2015a). Does (average) size matter? Court enforcement, business demography and firm growth. Small Business Economics, 44(3), 639–669.CrossRefGoogle Scholar
  22. García-Posada, M., & Mora-Sanguinetti, J.S. (2015b). Entrepreneurship and enforcement institutions: disaggregated evidence for Spain. European Journal of Law and Economics, 40(1), 49–74.CrossRefGoogle Scholar
  23. Gimeno, J., Folta, T.B., Cooper, A.C., Woo, C.Y. (1997). Survival of the fittest? Entrepreneurial human capital and the persistence of underperforming firms. Administrative science quarterly, 42, 750–783.CrossRefGoogle Scholar
  24. Ippoliti, R., Melcarne, A., Ramello, G.B. (2015). Judicial efficiency and entrepreneurs’ expectations on the reliability of European legal systems. European Journal of Law and Economics, 40(1), 75–94.CrossRefGoogle Scholar
  25. Jensen, M.C. (1993). The modern industrial revolution, exit, and the failure of internal control systems. The Journal of Finance, 48(3), 831–880.CrossRefGoogle Scholar
  26. Jia, Y.G. (2015). The impact of personal bankruptcy law on entrepreneurship. Canadian Journal of Economics, 48(2), 464–493.CrossRefGoogle Scholar
  27. Lee, S.-H., Peng, M.W., Barney, J.B. (2007). Bankruptcy law and entrepreneurship development : a real options perspective. The Academy of Management Review, 32(1), 257–272.CrossRefGoogle Scholar
  28. Lee, S.-H., Yamakawa, Y., Peng, M.W., Barney, J.B. (2011). How do bankruptcy laws affect entrepreneurship development around the world? Journal of Business Venturing, 26(5), 505–520.CrossRefGoogle Scholar
  29. Melcarne, A., & Ramello, G.B. (2015). Judicial independence, judges’ incentives and efficiency. Review of Law & Economics, 11(2), 149–169.CrossRefGoogle Scholar
  30. North, D.C. (1990). Institutions, institutional change and economic performance. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  31. Palumbo, G., Giupponi, G., Nunziata, L., Sanguinetti, J.S.M. (2013). The economics of civil justice: new cross-country data and empirics. Technical report, OECD.Google Scholar
  32. Peng, M.W., Yamakawa, Y., Lee, S.-H. (2010). Bankruptcy laws and entrepreneur-friendliness. Entrepreneurship: Theory and Practice, 34(3), 517–530.Google Scholar
  33. Rohlin, S.M., & Ross, A. (2016). Does bankruptcy law affect business turnover? evidence from new and existing business. Economic Inquiry, 54(1), 361–374.CrossRefGoogle Scholar
  34. Simmons, S.A., Wiklund, J., Levie, J. (2014). Stigma and business failure: implications for entrepreneurs’ career choices. Small Business Economics, 42(3), 485–505.CrossRefGoogle Scholar
  35. Skeel, D.A. (2001). Debt’s dominion: a history of bankruptcy law in America. Princeton: Princeton University Press.Google Scholar

Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.EconomiXCNRS & Université Paris NanterreNanterreFrance
  2. 2.DiGSPESUniversità del Piemonte OrientaleAlessandriaItaly

Personalised recommendations