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Macroeconomic implications of insolvency regimes

Author

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  • Benjamin Hemingway

    (Bank of Lithuania & Vilnius University)

Abstract

The impact of creditor and debtor rights following firm insolvency are studied in a firm dynamics model where defaulting firms choose between restructuring or exit. The model accounts for differing effects of productivity shocks across economies that differ in the credit/debtor rights. Following a negative shock labour productivity falls sharply in a creditor-friendly regime such as the UK while in a debtor-friendly regime such as the US, there is a larger employment response. This paper suggests a possible explanation for the different employment and labour productivity response in the UK and US since the financial crisis.

Suggested Citation

  • Benjamin Hemingway, 2020. "Macroeconomic implications of insolvency regimes," Bank of Lithuania Working Paper Series 77, Bank of Lithuania.
    • Handle: RePEc:lie:wpaper:77
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    References listed on IDEAS

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    More about this item

    Keywords

    Bankruptcy; Insolvency; Firm Financing;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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