Legal Reform and Aggregate Small and Micro Business Bankruptcy Rates: Evidence from the 1997 Belgian Bankruptcy Code

40 Pages Posted: 1 Jun 2006 Last revised: 17 Sep 2015

Nico Dewaelheyns

KU Leuven - Faculty of Business and Economics (FEB)

Cynthia Van Hulle

KU Leuven - Department of Applied Economics

Date Written: March 2007

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 solely the reforms aimed at limiting domino bankruptcy effects have had a substantial impact. Our findings have several policy implications for the evaluation and modification of the bankruptcy system.

Keywords: Bankruptcy reform, Aggregate bankruptcy rates

JEL Classification: G33, E32, K22

Suggested Citation

Dewaelheyns, Nico and Van Hulle, Cynthia, Legal Reform and Aggregate Small and Micro Business Bankruptcy Rates: Evidence from the 1997 Belgian Bankruptcy Code (March 2007). Small Business Economics, Vol. 31, No. 4, 2008. Available at SSRN: https://ssrn.com/abstract=905196 or http://dx.doi.org/10.2139/ssrn.905196

Nico Dewaelheyns (Contact Author)

KU Leuven - Faculty of Business and Economics (FEB) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Cynthia Van Hulle

KU Leuven - Department of Applied Economics ( email )

Naamsestraat 69
B-3000 Leuven
BELGIUM
32-16-326734 (Phone)
32-16-326732 (Fax)

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