Series: Working Papers. 1315.
Author: Miguel García-Posada and Juan S. Mora-Sanguinetti.
Published in: SERIEs, Journal of the Spanish Economic Association, August 2014, 5 (2-3), pp. 287-332
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Abstract
Small businesses, the majority of Spanish firms, rarely file for formal bankruptcy, and this has been the case even during the current economic crisis. This suggests that bankruptcy law has a limited role to play in the distress of small firms. We propose an explanation based on two premises: (i) bankruptcy procedures are more costly and drawn out than the main alternative procedure, the mortgage foreclosure; (ii) personal bankruptcy law is unattractive to the individual debtor. Empirical analyses on a large micro data sample of Spanish, French and UK firms corroborate our hypothesis. It is important to note that these results are based on data that do not yet capture the impact of recent reforms of the Spanish insolvency framework.