OECD INDICATORS OF INSOLVENCY REGIMES
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Session 1 Müge Adalet McGowan, OECD 14 September 2017, Paris Bankruptcy and Second Chance Policies OECD, Paris
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OECD INDICATORS OF INSOLVENCY REGIMES
- 1. OECD INDICATORS OF INSOLVENCY REGIMES Müge Adalet McGowan 14 September 2017 Bankruptcy and Second Chance Policies OECD, Paris
- 2. • Rationale: market imperfections prevent the orderly exit of failing firms • Goals: insolvency regimes can restructure viable firms and liquidate non-viable ones – In practice, correctly distinguishing between viable and non-viable firms can be difficult. • Trade-offs: insolvency regimes need to balance providing incentives for experimentation by entrepreneurs with lending by creditors. Insolvency regimes: rationale, goals and trade-offs
- 3. World Bank Doing Business: • Only refer to corporate insolvency • Outcome-based indicators: time and cost to close a business – Based on a stylised case study: hotel as debtor, tangible assets, only one creditor, focus on formal insolvency proceedings • Strength of insolvency framework – Miss some of the policy design features relevant for productivity European Commission and Armour and Cumming (2008): • Limited country and time coverage (recent insolvency reforms) Existing indicators of insolvency regimes
- 4. • OECD questionnaire and indicators: – Corporate and personal insolvency – Based on international best practice and existing literature – Different policy design features linked to inefficiencies on the exit margin – Increasing in the extent to which the insolvency regime delays the initiation of and increases the length of insolvency proceedings • Limitations: – Focus on ex-post efficiency incentives – Addressing trade-offs – Not capture quality of resolution and complementarities with other policies (e.g. judicial efficiency) Measurement of insolvency regimes
- 5. New cross-country indicators of insolvency regimes Equal weights assigned to each feature for the composite indicators
- 6. Cross-country differences in insolvency regimes are significant Composite indicators of insolvency regimes 0.0 0.2 0.4 0.6 0.8 GBR JPN DEU PRT RUS ESP USA CHE FRA ISR IRL CRI GRC CHL FIN SVN NZL ITA CZE POL MEX LVA AUT NOR SVK TUR SWE LTU AUS CAN BEL NLD HUN EST 2016 2010 Source: Adalet McGowan, M., D. Andrews and V. Millot (2017), “Insolvency Regimes, Zombie Firms and Capital Reallocation”, OECD Economics Department Working Paper, No.1399.
- 7. 0.0 0.2 0.4 0.6 0.8 1.0 CAN TUR USA AUS GBR JPN RUS CHL LTU AUT CHE CRI DNK FIN FRA IRL ITA NOR NZL SVK SVN ESP GRC LVA MEX POL BEL DEU EST HUN ISR KOR MYS NLD PRT SWE CZE 2016 2010 7 … terms of personal insolvency regimes Personal costs to failed entrepreneurs
- 8. 0.0 0.2 0.4 0.6 0.8 1.0 CRI CZE DEU GBR ISR MEX RUS CHE DNK PRT ESP FIN FRA GRC IRL JPN POL SVK SVN USA KOR NZL SWE AUT BEL CHL CHN LVA AUS HUN ITA LTU NOR EST NLD CAN TUR 2016 2010 8 … barriers to corporate restructuring Barriers to corporate restructuring
- 9. 0.0 0.2 0.4 0.6 0.8 1.0 FRA GBR LUX AUT CHE CHL CHN DEU DNK ESP FIN IRL ISR ITA JPN KOR NZL PRT RUS SVN AUS BEL CRI GRC LVA NLD NOR POL SVK SWE TUR USA CAN CZE EST HUN LTU MEX 2016 2010 9 … and preventative and streamlining tools Lack of prevention and streamlining
- 10. 10 Special procedures for SMEs -1 0 1 CHE CHL ESP FIN FRA GBR IRL ITA KOR LUX SVK SVN USA AUS AUT BEL CAN CHN CRI CZE DEU DNK EST GRC HUN ISR JPN LTU LVA MEX NLD NOR NZL POL PRT RUS SWE TUR