Fostering the entrepreneurial development through the bankruptcy institution: an empirical approach for European countries

This thesis proposes a comprehensive study of the bankruptcy issue, highlighting the forces that, at diverse levels, guide the restructuring process of insolvent firms in turn conditioning economic activities. A deep understanding of the bankruptcy topic allows ex-post in discerning the factors that facilitate the recovery process of defaulted firms, and ex-ante in developing preventive mechanisms for strengthening the economic fabric and thus prompt the economic growth. Delving into financial and into law and economics literature, the three chapters of this thesis analyse the bankruptcy topic from diverse corners of investigation. Chapter I assesses how creditors of insolvent firms address the causes of firm’s default complementarily to financial and accounting figures for their decision on the debt restructuring plan, thus determining firm’s exit way from the bankruptcy procedure, i.e. reorganization, acquisition or liquidation. Chapter II, deepening at the individual level of the actor in charge of enforcing the bankruptcy law, the judge, investigates how the individual characteristics of lay judges affect the financial performance of the bankruptcy procedures they supervise in terms of debt recovery rates. Chapter III, through a cross-country analysis of bankruptcy codes and developing an original set of legal indexes, individuates the distinct normative provisions of reorganization and of liquidation procedures that concur in jointly stimulating entrepreneurial growth and credit supply by financial institutions. The results of this dissertation demonstrate how the several factors guiding the bankruptcy process combine, determining the likelihood for successful firm and debt restructuring. Moreover, they confirm as bankruptcy law conforms as an effective tool of economic policy to enhance economic growth. The findings may thus support the diverse actors involved in the insolvency affairs for a more efficient as well as effective conduct of the restructuring process, hence favouring the prospects for adequate settlements to firm’s insolvency, and policymakers for the optimization of bankruptcy codes to strengthen the economic and production systems and thus prompt economic growth. This thesis contributes to the financial and to the law and economics literature developing a comprehensive approach for the study of the bankruptcy topic, illustrating the factors that guide the bankruptcy issue and suggesting the means for tackling it.