Bankruptcy Resolution and Credit Cycles

84 Pages Posted: 12 Jun 2024

See all articles by Martin Kornejew

Martin Kornejew

University of Bonn

Chen Lian

University of California, Berkeley

Yueran Ma

University of Chicago - Booth School of Business

Pablo Ottonello

University of Maryland

Diego Perez

New York University (NYU) - Department of Economics

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Date Written: June 11, 2024

Abstract

We study how the macroeconomic dynamics following credit cycles vary with business bankruptcy institutions. Using data on bankruptcy efficiency and business credit around the world, we document that business credit booms are followed by severe declines in output, investment, and consumption in environments with poorly functioning business bankruptcy. On the contrary, in settings with well functioning business bankruptcy, the aftermath of credit booms is characterized by moderate changes in economic activities. We use a simple model to lay out how and when efficient bankruptcy systems can mitigate the negative consequences of credit booms.

JEL Classification: E60,G01,G3

Suggested Citation

Kornejew, Martin and Lian, Chen and Ma, Yueran and Ottonello, Pablo and Perez, Diego J., Bankruptcy Resolution and Credit Cycles (June 11, 2024). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2024-70, Available at SSRN: https://ssrn.com/abstract=4861511 or http://dx.doi.org/10.2139/ssrn.4861511

Martin Kornejew

University of Bonn ( email )

Regina-Pacis-Weg 3
Postfach 2220
Bonn, D-53012
Germany

Chen Lian

University of California, Berkeley ( email )

579 Evans Hall
Berkeley, CA 94709
United States

Yueran Ma (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Pablo Ottonello

University of Maryland ( email )

College Park
College Park, MD 20742
United States

Diego J. Perez

New York University (NYU) - Department of Economics ( email )

19 West 4th Street
New York, NY 10012
United States

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