Bankruptcy Around the World: Explanations of its Relative Use

The recent literature on law and finance has drawn qualitV of the counltrics' overall uldicial systems on the attention to the importance of creditor rights in use of hankruptcV. influenicinig the developmlenit of financial systems and in The authors find, correctinig for overall financial affectinig firm corporate governance and financinig development anid macroeconiomic shocks, that patterns. Recent financial crises have also highliglhted the hankruptcies are highier in Anglo-Saxoni countries and in importanlce of insolvency systems to resolve corporate market-orienlted financial systems clharacterized by sector finanicial distress. The literature and crises have weaker and multiple banking relationships. They also emphasized the complex role of creditor rights, affectinig find that greater judicial efficiency is associated with not only the efficiency of ex-post resolution of distressed more LIse of bankruiptcy, buit that the combination of corporations, but also influencinig ex-antc risk-taking stronger creditor rights with greater judicial efficiency incenitives anid an economy's degree of entrepr-enieurship Ieads to less use. The authlors find that the presence of a more generally "stay on assets" leads to fewer bankruptcies indepenidelit Claessecis and Klapper docLliiment howv often of the efficiency of the judicial system. These findings bankruptcy is actUally heing used for a panel of 35 suggest that there are important incentive effects of counltries. Next they investigate the effects of specific insolvency systems encouraging less risky' behavior and designi featres of insolvency regimes in relatioii to the mor0e out-of-court settlemncits. This papcr-a product of Finance, Development Research Group-is part of a larger effort in the group to uliderstand corporate bankrtptcy. Copies of the paper are available free from the World lBank, 181 8 H Street NW, Washiligtoll, D.C.