Legal reform and aggregate small and micro business bankruptcy rates: evidence from the 1997 Belgian bankruptcy code |
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Authors: | Nico Dewaelheyns Cynthia Van Hulle |
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Institution: | (1) Faculty of Economics and Applied Economics, Department of Accountancy, Finance and Insurance (AFI), Research Center Finance, K.U.Leuven, Naamsestraat 69, Leuven, 3000, Belgium;(2) Department of Business Studies, Lessius University College, Korte Nieuwstraat 33, Antwerpen, 2000, Belgium |
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Abstract: | Many Continental European countries recently reformed their bankruptcy legislations to stimulate reorganization and firm survival.
We show that the Belgian 1997 bankruptcy code reform, which implemented several international best practice recommendations,
significantly reduced aggregate small and micro business bankruptcy rates. However, using distributed lag models to control
for the relationship between bankruptcy rates and macroeconomic variables such as real GDP growth, consumer confidence, inflation,
etc., we find that the new code’s impact is not the same for all types of companies. Specifically, while the beneficial effect
of the reform is largely similar between small firms (i.e. stock corporations) and micro firms (i.e. partnerships), it is
only significant in certain industries (manufacturing and trade). Overall, our results indicate that especially the measures
taken to limit domino bankruptcy effects are likely to have had a substantial impact. Our findings have several policy implications
for the evaluation and modification of the bankruptcy system.
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Keywords: | Bankruptcy reform Aggregate bankruptcy rates |
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