Posts categorized under Bankruptcy

Giving zombie firms a second chance

June 22, 2022
The survival of less productive firms hampers the aggregate productivity growth in most developed economies as they consume resources that would be more productive elsewhere. Stimulated by the forbearance of creditors and inefficient insolvency regimes, the zombie phenomenon is generally believed to weaken business dynamism. The paper analyses how the 2012 institutional reforms related to insolvency and prudential supervision of credit institutions, introduced by the Portuguese and European Authorities, have reduced the share of zombie firms in the economy, and how they have impacted the growth of aggregate productivity.

Corporate reorganization as labor insurance in bankruptcy

July 13, 2021
How does corporate reorganization affect labor outcomes in bankruptcy? The existing literature argues that corporate reorganization affects labor reallocation because it retains workers in bankrupt firms. One the one hand, firms can remain alive for too long and retain workers inefficiently. On the other hand, reorganization reduces the probability of inefficient liquidation. This paper tests the hypothesis that job contracts are a form of insurance in times of adversity; that reorganization improves labor outcomes because it reduces the probability that workers lose the insurance provided by job contracts when the costs of job loss are high.

Sovereign distress and the credibility of deposit insurance

October 9, 2020
Deposit insurance arrangements are crucial to mitigate the likelihood of bank runs. However, the success of these protection schemes depends on their credibility, which explains why they are usually guaranteed by the sovereign. But what happens when the sovereign is also in distress? Can the sovereign backstop actually weaken the credibility of deposit insurance mechanisms in some circumstances? This paper examines two episodes that occurred during the euro area sovereign debt crisis (2010-2013) to better understand the role of the credibility of the sovereign backing the deposit insurance arrangements.

Does foreign presence induce host country firms’ exit? The case of Portugal

November 1, 2019
Multinational enterprises are a significant contributor to the world economy as evidenced by indicators of foreign affiliate activity such as sales, employment, exports, value added and assets. This paper studies their role as agents of competition using the Portuguese economy. Multinational activities might affect the host country industry dynamics due two main opposing effects. On one hand, the presence of foreign firms may induce less efficient domestic firms to exit the market (a crowding-out effect) through, for example, aggressive business practices of foreign firms (e.