Bankruptcy delay and firms’ dynamics
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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.
KeywordsBankruptcy Judicial delay Entrepreneurship Firms’ dynamics
JEL classificationD23 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.
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