Bankruptcy Around the World: Explanations of its Relative Use

The recent literature on law and finance has drawn attention to the importance of creditor rights in influencing the development of financial systems and in affecting firm corporate governance and financing patterns. Recent financial crises have also highlighted the importance of insolvency systems to resolve corporate sector financial distress. The literature and crises have emphasized the complex role of creditor rights, affecting not only the efficiency of ex-post resolution of distressed corporations, but also influencing ex-ante risk-taking incentives and an economy's degree of entrepreneurship more generally. The authors document how often bankruptcy is actually being used for a panel of 35 countries. Next they investigate the effects of specific design features of insolvency regimes in relation to the quality of the countries' overall judicial systems on the use of bankruptcy. The authors find, correcting for overall financial development and macroeconomic shocks, that bankruptcies are higher in Anglo-Saxon countries and in market-oriented financial systems characterized by weaker and multiple banking relationships. They also find that greater judicial efficiency is associated with more use of bankruptcy, but that the combination of stronger creditor rights with greater judicial efficiency leads to less use. The authors find that the presence of a "stay on assets" leads to fewer bankruptcies independent of the efficiency of the judicial system. These findings suggest that there are important incentive effects of insolvency systems encouraging less risky behavior and more out-of-court settlements.

Bibliographic Details

Main Authors:	Claessens, Stijn, Klapper, Leora F.
Language:	English en_US
Published:	World Bank, Washington, D.C. 2002-07
Subjects:	ACCOUNTING, ASIAN DEVELOPMENT BANK, ASSETS, BANK LOANS, BANKRUPTCY, BANKRUPTCY CODE, BANKRUPTCY COURTS, BANKRUPTCY LAW, BANKRUPTCY LAWS, BANKRUPTCY PROCEDURES, BANKRUPTCY PROCEEDINGS, BORROWING, CAPITAL MARKETS, CIVIL LAW, COMMON LAW, CORPORATE FINANCE, CORRUPTION, COUNTRY COMPARISONS, CREDITOR, CREDITORS, DEBT RESTRUCTURING, DEBTOR, DEBTORS, DEFAULTS, DISTRIBUTION OF WEALTH, DIVIDEND PAYOUT, DOMESTIC DEBT, ECONOMIC DEVELOPMENT, ECONOMIC RESEARCH, EMPLOYMENT, ENTREPRENEURSHIP, EQUALITY, EQUITY INVESTMENT, EQUITY MARKETS, FINANCIAL CRISES, FINANCIAL CRISIS, FINANCIAL INSTITUTIONS, FINANCIAL MARKETS, FINANCIAL STRUCTURE, FINANCIAL SYSTEMS, FIXED COSTS, GDP, GDP PER CAPITA, GOING CONCERN VALUE, GROWTH RATE, INCENTIVE EFFECTS, INHERITANCE, INSOLVENCY, INTEREST RATES, LAW CODES, LEGAL FRAMEWORK, LEGAL RIGHTS, LEGAL SYSTEMS, LEGALITY, LIQUIDATION, MACROECONOMIC CONDITIONS, MACROECONOMIC PERFORMANCE, MACROECONOMIC SHOCKS, POLITICAL ECONOMY, PROBABILITY OF DEFAULT, PROFITABILITY, QUALITY OF LAWS, REAL GDP, REAL INTEREST RATE, REORGANIZATION, REPUDIATION, RESOURCE ALLOCATION, RULE OF LAW, SYSTEMIC BANKING CRISES, TIME SERIES, TRANSACTION COSTS, TRANSITION ECONOMIES, VALUATION, WORKING CAPITAL BANKRUPTCY, CREDITWORTHINESS, FINANCIAL ANALYSIS, CORPORATE GOVERNANCE, JUDICIAL SYSTEMS, FINANCIAL DEVELOPMENT, MARKET ECONOMY, BANKING SYSTEMS,
Online Access:	http://documents.worldbank.org/curated/en/2002/07/1963446/bankruptcy-around-world-explanations-relative-use https://hdl.handle.net/10986/14259
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