تاخیر ورشکستگی و پویایی شرکت ها Bankruptcy delay and firms’ dynamics

1 Introduction Fail fast, fail cheap and move on! This Silicon Valley’s motto condenses in a few words the emerging entrepreneurial spirit driving economic forces nowadays. The simple tenet that failure is no more to be considered uniquely as a painful event for entrepreneurs has gained momentum in the scholarly debate, suggesting that bankruptcy might still yield beneficial consequences for society and the economy as a whole. However, in order for these positive effects to emerge, bankruptcy institutions not only need to be well designed. Even the most efficient rule will turn out to be ineffective if not properly enforced: something ultimately done by the judiciary. A vast literature has explored the impact of institutions on economic activity (Baumol 1990; North 1990; Acs and Szerb 2006; Chowdhury et al. 2015). Regulatory regimes shape the framework in which entrepreneurs conduct their transactions and thus might substantially affect their propensity to enter or exit markets. However, while most literature has focused its attention on entry regulation (Djankov et al. 2002), not as much has been done with respect to those institutions that regulate the final stage of a firm’s lifecycle. Previous works have shown that bankruptcy law influences firms’ financial structure in countries like the USA (Skeel 2001) or Germany (Eger 2001) and entrepreneurs’ risk perceptions (Estrin et al. 2017). In the present work, we wish to stress that, although directly dealing with the exit of businesses from markets, bankruptcy institutions have an impact on the entire life cycle of a firm and thus equally affect both the entry of perspective entrepreneurs and the exit of insolvent businesses. This is particularly true for business-bankruptcy law, since it regulates a very crucial moment in firms’ lives: the formalization of an entrepreneurial failure and the transfer of its assets to creditors. However, even from this painful event, these might still derive beneficial returns on the societal level. Previous works have theorized that an entrepreneurship “friendly” bankruptcy law has a positive impact on markets’ dynamics by encouraging firms to engage risks and entry markets (Lee et al. 2007, 2011; Peng et al. 2010). At the same time, such regulation, by stimulating competition, helps pushing unproductive firms out of the markets more smoothly, thus allowing a more efficient allocation of their assets (Jensen 1993). We focus on Italy as a case study in order to provide empirical evidence of these claims. From an historical perspective, Italy is a significant country for the purpose of studying bankruptcy institutions: the very first form of insolvency regulation dates back to ancient roman law.1 Unfortunately, nowadays, Italy has become relevant with respect to this issue for other (less remarkable) achievements. Several international organizations as the OECD, the World Bank and the European Council have acknowledged Italy as the worst ranked country (at least among European ones) when it comes to the performance of its judiciary.