metadata: authors: 0: author: Claessens,Constantijn A.
1: author: Klapper,Leora
docna: 0: docna: Bankruptcy around the world - explanations
            of its relative use
docty: Policy Research Working Paper
subtopic: Social Policy,Legal Products,Judicial System Reform,Multinational & Corporate Governance,Corporate Governance,Capital Markets and Capital Flows,Capital Flows,Legal Reform,Legislation,Regulatory Regimes,Civic Participation and Corporate Governance,Bankruptcy and Resolution of Financial Distress
teratopic: Finance and Financial Sector Development
abstracts: cdata!: The recent literature on law and finance
            has drawn attention to the importance of creditor rights in
            influencing the development of financial systems and in
            affecting firm corporate governance and financing patterns.
            Recent financial crises have also highlighted the importance
            of insolvency systems to resolve corporate sector financial
            distress. The literature and crises have emphasized the
            complex role of creditor rights, affecting not only the
            efficiency of ex-post resolution of distressed corporations,
            but also influencing ex-ante risk-taking incentives and an
            economy's degree of entrepreneurship more generally.
            The authors document how often bankruptcy is actually being
            used for a panel of 35 countries. Next they investigate the
            effects of specific design features of insolvency regimes in
            relation to the quality of the countries' overall
            judicial systems on the use of bankruptcy. The authors find,
            correcting for overall financial development and
            macroeconomic shocks, that bankruptcies are higher in
            Anglo-Saxon countries and in market-oriented financial
            systems characterized by weaker and multiple banking
            relationships. They also find that greater judicial
            efficiency is associated with more use of bankruptcy, but
            that the combination of stronger creditor rights with
            greater judicial efficiency leads to less use. The authors
            find that the presence of a "stay on assets" leads
            to fewer bankruptcies independent of the efficiency of the
            judicial system. These findings suggest that there are
            important incentive effects of insolvency systems
            encouraging less risky behavior and more out-of-court settlements.
repnme: repnme: Bankruptcy around the world - explanations
            of its relative use
display_title: Bankruptcy around the world -
            explanations of its relative use
listing_relative_url: /research/2002/07/1963446/bankruptcy-around-world-explanations-relative-use
topicv3: Justice m1326106 840,Common Law m1326145 2071,Corporate Governance m1326968 417,Civil Law m1327064 1044,Bankruptcy and Liquidation m1327467 1277
publishtoextweb_dt: 2010-07-01T00:00:00Z
historic_topic: Finance and Financial Sector Development
origu: Development Research Group (DECRG)
no_of_pages: 40
model_extractions: I Poi_ic RESEARCH WORKING I'AI'ER 2865

# Abstract

The recent literature on law and finance has<sup>drawn</sup> attention to the importance of creditor<sup>rightsin</sup> influenicinig the developmlenit of financial<sup>systemsandin</sup> affectinig firm corporate governance and<sup>financinig</sup> patterns. Recent financial crises have also<sup>highliglhtedthe</sup> importanlce of insolvency systems to resolve<sup>corporate</sup> sector finanicial distress. The literature<sup>andcriseshave</sup> emphasized the complex role of creditor<sup>rights,affectinig</sup> not only the efficiency of ex-post resolution<sup>of distressed</sup> corporations, but also influencinig ex-antc<sup>risk-taking</sup> incenitives anid an economy's degree of entrepr-enieurship more generally Claessecis and Klapper docLliiment<sup>howvoften</sup> bankruptcy is actUally heing used for<sup>apanelof 35</sup> counltries. Next they investigate the effects<sup>of specific</sup> designi featres of insolvency regimes<sup>inrelatioii to the</sup> qualitV of _the_ counltrics' overall uldicial<sup>systems</sup><sup>_on_the</sup> use of hankruptcV.

The authors find, correctinig for overall<sup>financial</sup> development anid macroeconiomic shocks,<sup>that</sup> hankruptcies are highier in Anglo-Saxoni<sup>countriesandin</sup> market-orienlted financial systems clharacterized<sup>by</sup> weaker and multiple banking relationships.<sup>Theyalso</sup> find that greater judicial efficiency<sup>is</sup> associated<sup>with</sup> more LIse of bankruiptcy, buit that the<sup>combinationof</sup> stronger creditor rights with greater judicial<sup>efficiency</sup> Ieads to less use. The authlors find that<sup>thepresenceof a</sup> "stay on assets" leads to fewer bankruptcies<sup>indepenidelit</sup> of the efficiency of the judicial system.<sup>These findings</sup> suggest that there are important incentive<sup>effectsof</sup> insolvency systems encouraging less risky'<sup>behaviorand</sup> mor0e out-of-court settlemncits.

This papcr-a product of Finance, Development<sup>ResearchGroup-ispartofalargereffortinthe grouptouliderstand</sup> corporate bankrtptcy. Copies of the paper<sup>areavailablefreefromtheWorldlBank,1818 HStreetNW, Washiligtoll,D.C.</sup> 20433. Please contact Agnes Yaptenco,<sup>roomIvlC3-446,tclephone202-473-1823.fax</sup><sup>_202-522-1_155,eilailaddress</sup> ayaptenico(yt worldbanik.org. Policy Research<sup>Workiing Papers are alsoposted oiitheWebat http://ccon.\worldbaa;k .org.-T-h</sup> atithors mav be contacted at sti jn0l fee.uva.<sup>nlorlklapper(iwvorldbank.org.July2002.(34pages).</sup>

> _I'lhe P'olici Researclh W/orkiog Paper_<sup>_Seriesdisseminatesthetildingsof workinprogresstc encournrgetheexcbenzgeof ideasabhot_</sup> _developmient issues. Ani object we of_<sup>_the series is to_</sup><sup>**_gLt_**</sup><sup>_the fiidinigs ontluicklY.,evenif the lpresentationsareless than fi/vlipolished.The_</sup> _papers carry the_ **_names_** _of the au lthors_<sup>_andshouildbe c-itedaccordiPiivlv.Thefindinzgs,interpretations.and conclusionsexpr essed_</sup><sup>**_iii_**</sup><sup>_this_</sup> _paper are enitirelv those of the aiuthors._<sup>_TheYdo) notnecessarilre presentthevieuof theWorldBaink.itsExecutiite Directors,or tle_</sup> _counltries the' represenzt._

Prodticed liv the Resea;rch Advisorv Staff
**Bankruptcy Around the World: Explanations of** its **Relative Use**

**Stijn Claessens** Finance Group University of Amsterdam Roetersstraat 11, 1018 WB Amsterdam, The Netherlands (31)-(20)-525-6020 stiin()fee.uva.nl

**Leora** F. **Klapper** Development Research Group The World Bank 1818 H Street, NW Washington, DC 20433 (202) 473-8738 lklapper(.worldbank.org

The authors would like to thank Sandeep Dahiya, Asli Demirguc-Kunt, Simeon Djankov, Fritz Foley, Roumeen Islam, Papillon Benoit Mario, David Skeel, and Do Quy-Toan for helpful comments and Jessica Lieberman and Victor Sulla for excellent research assistance.
# 1. Introduction

The growing literature on law and finance, starting with the work<sup>byLa Porta,</sup> Lopez de Silanes, Shleifer, and Vishny (1997, 1998),<sup>hasdrawnattentiontothe</sup> importance of the strength of equity and creditor rights in influencing<sup>the developmentof</sup> financial systems and in affecting firm corporate governance<sup>andfinancingpatterns.</sup> This literature finds that greater investor protection encourages<sup>thedevelopmentof</sup> capital markets and that countries that better protect creditors<sup>have moredevelopedcredit</sup> markets. Important aspects of the strength of creditor rights are<sup>the specific featuresof a</sup> country's insolvency regime and its enforcement. Recent financial<sup>criseshavefurther</sup> highlighted the importance of well-functioning insolvency systems<sup>to prevent and resolve</sup> corporate sector financial distress. More generally, there is<sup>increased interest globallyin</sup> the design of insolvency systems from a point of resource<sup>allocation,efficiency,and</sup> stability as well as equality and fairness (see Stiglitz 2001<sup>and Hart 2000 for reviews).</sup> Insolvency regimes include a number of features, such as<sup>whetherthelaw</sup> provides for an automatic trigger when a company needs to file<sup>for bankruptcy,who can</sup> file for reorganization or liquidation, the weight given to the debtor,<sup>thecreditors(bank</sup> loans, trade financing), the company's management, and the<sup>other stakeholdersin</sup> preparing reorganization proposals, the ability of management<sup>tostayduringthe</sup> reorganization, and whether an automatic stay of assets<sup>exists.In thesedesign features,</sup> an insolvency regime tries to balance several objectives, including<sup>protecting the rights of</sup> creditors and other stakeholders - essential to the mobilization<sup>of capitalfor investment</sup> and working capital and other resources - and obviating<sup>theprematureliquidationof</sup> viable firms.

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A good insolvency regime should also prevent managers<sup>and shareholdersfrom</sup> taking imprudent loans and lenders from giving loans<sup>with a high probabilityof default.</sup> At the same time, the insolvency regime should provide<sup>fora degreeof entrepreneurship</sup> in the economy more generally. An insolvency regime<sup>shouldalsodeliveranex-post</sup> efficient outcome, in the sense that the highest total<sup>valueis obtainedfor thedistressed</sup> firm with the least direct costs and loss in going concern<sup>value.</sup> The working of countries' judicial systems further complicates balancing<sup>these incentives.In additionto</sup> adequate legal rights, there is a need for an efficient<sup>judicialsystemtoenforcethese</sup> rights, or at least to serve as a credible threat.

The analytical literature and recent crises have already<sup>highlighted thecomplex</sup> role of creditor rights in affecting not only the<sup>ex-post resolutionofdistressed</sup> corporations, but also in influencing ex-ante incentives<sup>andaneconomy'sdegreeof</sup> entrepreneurship more generally. As the structure of economic<sup>productionand the values</sup> of stakeholders are continuously changing - often in<sup>responsetorecentcrises-many</sup> countries are also currently reevaluating the features of<sup>theircreditorrights regimesand</sup> how their insolvency systems deal with financially distressed<sup>firms.Thishas provento</sup> be a complicated area in many countries, with discussions<sup>on reformtakingconsiderable</sup> time. Reforms may have been protracted in part because of<sup>theimportant implicationsof</sup> any changes for the distribution of wealth and control<sup>inan economy,raising inturn</sup> complex political economy issues. Reforms may have also<sup>been hampered by thelack of</sup> empirical evidence across countries on the effects of bankruptcy<sup>useand efficiency.</sup> 3
While more data are being collected on differences<sup>in bankruptcyregimesacross</sup> countries,' to date little is known on the effects of<sup>specificcreditor rightfeatures and their</sup> interaction with the judicial system and other country characteristics.<sup>Thecross-country</sup> empirical evidence has largely been limited to the<sup>generaleffects of creditorrights.Even</sup> here the evidence has been mixed, with some finding<sup>only limitedornosignificanceof</sup> the aggregate strength of creditor rights on financial<sup>development.</sup> Furthermore, the precise channels through which a country's institutional<sup>inheritanceaffects its financial</sup> development and what aspects of legal systems are<sup>mostimportantfor firm financing are</sup> still being investigated. Much research is being conducted,<sup>for example,onwhat aspects</sup> of a Common (Civil) Law heritage help explain<sup>thatsuchcountrieshavemore (less)</sup> developed equity and financial markets. More robust tests and indirect measures are being used to explore the channels through which<sup>countries'legalandinstitutional</sup> "structure" matter.<sup>2</sup> One indirect measure that may help shed light<sup>onthesechannelsmightbethe</sup> actual use of bankruptcy as a means to resolve<sup>financialdistress andtherelationship</sup> between actual use and a country's institutional<sup>features,includingitscreditorrights,</sup> legal heritage and judicial system. To date, however, it is not known how often bankruptcy is actually being used in countries<sup>around the world.Neither is it known why</sup> its usage varies by country characteristics like differences<sup>inlegalsystems,accounting</sup> l The World Bank, Asian Development Bank, and<sup>Inter-AmericanDevelopmentBank</sup> have started to document the detailed features of<sup>bankruptcysystemsin manycountries.</sup> The World Bank has also undertaken a review of<sup>desirableprinciplesand guidelinesfor</sup> bankruptcy systems.

2 See Acemoglu, Johnson and Robinson, 2001, Beck,<sup>Levineand Loayza,2000,Berglof</sup> and Von Thadden, 1999, Coffee, 2000, La Porta<sup>etal.,2002,Rajan andZingales,1999</sup> and 2002, and Stulz and Williamson, 2001.

4
standards and regulatory frameworks, as well as differences<sup>in the developmentof</sup> financial and capital markets and macroeconomic conditions.

The purpose of this paper is to explore the relative importance<sup>ofcountry</sup> characteristics and the effect of different types of creditor rights<sup>that can helpexplain the</sup> relative use of bankruptcy. For this, we collect from various<sup>governmentandprivate</sup> sources a unique dataset of the number of commercial bankruptcy<sup>filings in35countries.</sup> As shown in Appendix 2, almost all countries in our sample have laws protecting<sup>secured</sup> creditor rights and have bankruptcy laws permitting both liquidation<sup>and restructuringof</sup> distressed firms. There is considerable variation, however, in<sup>howfrequentlytheselaws</sup> are resorted to through formal bankruptcy filings. The data on<sup>actual bankruptciesallows</sup> us to investigate which legal design features and macro, financial,<sup>and othercountry</sup> characteristics affect the likelihood that creditors use formal<sup>bankruptcy proceduresasa</sup> means of resolving corporate financial distress. To our knowledge,<sup>this paperis the first</sup> attempt to identify empirically reasons for the use of bankruptcy<sup>across countries.</sup> We find, correcting for overall financial development and<sup>macroeconomic</sup> shocks, that bankruptcies are higher in common-law countries<sup>andinmarket-oriented</sup> financial systems. We also find that greater judicial efficiency<sup>isassociatedwithmore</sup> use of bankruptcy, but that the combination of stronger creditor<sup>rights-both aggregated</sup> and evaluated separately by specific features - and greater judicial<sup>efficiency leads to less</sup> use of bankruptcy. Interestingly, we find that the presence of<sup>a "stay on assets"leadsto</sup> fewer bankruptcies independently of the efficiency of the judicial system.<sup>These findings</sup> suggest that there are important ex-ante incentive effects of<sup>insolvencysystems,</sup> including encouraging less risky behavior and more out-of-court<sup>settlements.Butour</sup> _5_
findings also suggest that efficient legal mechanisms<sup>themselvesmay helpcorporations</sup> achieve speedy resolutions of financial distress.<sup>In tum, thesefindingmay shedlight on</sup> the debate of what are the precise channels<sup>throughwhicha country'sinstitutional</sup> structure affects its financial development.

# 2. **Previous Literature and Hypotheses**

The central role played by law and regulatory<sup>institutionsin thedevelopmentof</sup> financial markets in general and in corporate<sup>financeinparticularhasreceived</sup> considerable attention in recent years. La<sup>Porta, Lopez-de-Silanes, Shleifer,and Vishny</sup> (1998) examine cross-country differences<sup>inthequalityoflaws,regulations,and</sup> enforcement, including creditor rights. They document considerable variation in the protection offered to creditors and minority<sup>shareholders across countries. They also find</sup> a significant association between the legal<sup>originsof a countryand the qualityof investor</sup> protection. In particular, their findings show<sup>that commonlaw countries(Anglo-Saxon)</sup> generally provide the best investor protection<sup>whereas civil laworigin(French, German,</sup> and Scandinavian) countries provide the least<sup>investor protection.</sup> Importantly, the literature on law and finance<sup>has drawnattentiontothe</sup> importance of equity and creditor rights<sup>ininfluencingthe developmentof financial</sup> systems and in affecting firm corporate governance,<sup>ownership, andfinancing patterns.</sup> A number of papers have reported significant relationships<sup>betweenthe legalframework</sup> of a country and its financial development<sup>andeconomicgrowthandbetween investor</sup> 6
protection and legal origin and various corporate governance issues, such as firm dividend payout policies, firm valuation, and corporate ownership structures.<sup>3</sup> To investigate these relationships in the case of creditor rights, La Porta et al. (1998) created an index of CREDITOR RIGHTS consisting of the summation of four dummy variables, with four the highest possible score. The dummy variables they report are: TIME, equal to 1 if the timetable for rendering a judgment is less than 90 days, and 0 otherwise; MANAGER, equal to 1 if incumbent management does not stay during a restructuring or bankruptcy, and 0 otherwise; STAY, equal to 1 if there is no automatic stay on assets, and 0 otherwise; CREDITOR, equal to 1 if secured creditors have the highest priority in payment, and 0 otherwise. La Porta et al. (1997) reports a positive relationship between the ratio of domestic debt to GDP and this aggregate creditor right index, although the creditor rights variable has only 10% significance. Controlling for the country's legal origin (Anglo-Saxon, French, Germanic, and Scandinavian) and the existence of the rule of law in the country, the significance of the creditor rights variable actually disappears.

Neither La Porta et al. (1997) nor the other papers on law and finance investigated the effects of each specific sub-index of the Creditor Rights index on the development of the credit markets. We may expect, however, that there are considerable differences between the effects of each specific creditor rights on firm and creditor behavior. A stipulation in the insolvency law that provides creditors with the right of no automatic stay on assets, for example, provides creditors with some bargaining power that may

> 3See Beck, Levine and Loayza, 2000, La Porta et al., 1997 and 2002, Rajan and Zingales, 1995 and 1998, La Porta, Lopez-de-Silanes, and Shleifer, 1999, and Demirgiiu-Kunt and Maksimovic, 1998.

7
allow them to more easily negotiate debt restructuring out of court. At the same time, the absence of an automatic stay may lead to a creditor race to seize assets, thus possibly accelerating the possibility of financial distress and bankruptcy. Interestingly, work at the global level on developing principles and guidelines for an effective insolvency and creditor right system suggests that there should preferably be an automatic stay on assets for at least some initial period (World Bank, 2001). This differs from La Porta et al. (1998) whom consider in constructing their index the absence of an automatic stay a positive creditor rights feature. This suggests that there are some differences of opinion on what constitute desirable creditor rights features, which in turn may relate to our lack of understanding on how certain creditor rights features affect actual bankruptcy use.

The presence in the law of secured creditor priority and absolute priority of claims in bankruptcy or restructuring (i.e., senior creditors are paid first, then junior creditors, followed finally by shareholders if any residual remains) is another example. Such priority may deter ex-ante risky financial behavior and thus reduce the likelihood of financial distress. Such feature can also help overcome creditor coordination problems when a corporation is in restructuring. At the same time, if the law stipulates that shareholders receive nothing in bankruptcy, a firm may attempt to delay or avoid bankruptcy, including undertaking more high-risk projects when the corporation starts to run into financial distress. Depending on whether the insolvency law at the same time stipulates whether managers have to automatically leave when a firm is in bankruptcy, incentives will vary whether managers will act or not on behalf of shareholders.

These discussions show that each of the specific creditor right features may influence firm and creditor behavior differently and what constitutes a desirable creditor 8
right feature may depend on circumstances or objectives.<sup>4While wemay expecttheuse</sup> of bankruptcy to vary with the strength of (specific)<sup>creditorrights,thiswillalsobe</sup> influenced by the ability of creditors to use these rights,<sup>whichin turn will depend on the</sup> efficiency of the judicial system. Modigliani and Perotti<sup>(2000)drawattentiontothe</sup> finding that when a country's enforcement regime is<sup>unreliable,transactionsmaybe</sup> carried out through some form of private enforcement.<sup>La Portaet al.(1997) show the</sup> importance of the judicial system, in addition to formal<sup>legalrights,for financial market</sup> development. Berkowitz, Pistor and Richard (2000)<sup>arguethatthequalityof laws,as</sup> often measured by the country's legal origin, is only a<sup>crudeproxyfor the effectiveness</sup> of legal systems - instead it is the effective enforcement<sup>of laws ratherthan the quality of</sup> laws that matters.<sup>5</sup> Whether courts are asked to help resolve financial distress<sup>may alsosimilarly</sup> depend on the efficiency of the judicial systems. Creditors may be more likely to undertake the costs of filing for bankruptcy if they are<sup>able toeffectivelyuse thecourts in</sup> the case of default. A country with strong and efficient<sup>legalenforcementmightthus see</sup> more frequent use of the statutory provisions provided<sup>inthelegalcode.At thesame</sup> time, if enforcement is strong, we may expect debtors<sup>and creditorsto try to avoid risky</sup> 4 Furthermore, while the work by La Porta et al. (1998)<sup>provides some detailon creditor</sup> right features, obviously there are many other aspects<sup>in which insolvency regimesdiffer</sup> across countries. The work at the World Bank on developing<sup>Principlesand Guidelines</sup> for Effective Insolvency and Creditor Rights Systems<sup>mentions,forexample,35</sup> principles countries could adopt or pursue. The effects of<sup>thesemoredetailed design</sup> features may in turn be reflected in the relative use of<sup>bankruptcyacrosscountries.</sup> Unfortunately, data on more detailed features are not available<sup>in asystematicway.</sup> 5 For transition economies, Pistor, Raiser and Gelfer<sup>(2000)showthat thelaws onthe</sup> books have limited effects on financial market development,<sup>butthatmeasuresof</sup> effective enforcement do. Rajan and Zingales (1999<sup>and2002) alsoprovideevidence</sup> that argues for factors other than legal origin as predictors of stock<sup>market growth.</sup> 9
behavior, thereby reducing the chances of financial distress and bankruptcy. Alternatively, if enforcement is weak, debtors and creditor may try to work out a situation of financial distress through private negotiations, since the transaction costs of using an inefficient enforcement system may be too high. At the same time, in countries with weak judicial systems, debtors may engage in more risky financial behavior, thus leading to more financial distress. Corporate financial distress provides one specific setting to examine the effects of the efficiency of the judicial system relative to the formal laws. For example, Claessens, Djankov, and Klapper (2002) found that in a sample of East Asian countries, creditors are more likely to incur the costs of bankruptcy if ex-ante creditor rights and ex-post judicial efficiency indicate a likely recovery of losses.

This suggests that variations in enforcement efficiency should cause differences in the use of formal bankruptcy procedures, even if bankruptcy laws are broadly similar. The impact of the (lack of) judicial efficiency may also vary by specific creditor right as the need for enforcement varies. The absence of an automatic stay on assets may, for example, be very valuable to creditors when the judicial system is weak as it can force debtors to negotiate out of court. But in a strong judicial system, the absence of a stay may be more beneficial as it preserves the going concern value of firms in reorganization, thereby reducing the chances of eventual bankruptcies. More generally, the features of an insolvency system are designed to deal with specific issues, such as too risky behavior by debtors, creditor races to grab assets, the preservation of going concern value, the maintenance of priorities among claims to preserve incentives for monitoring, etc. The 10
degree to which the effectiveness of a specific feature<sup>dependson the judicialsystem and</sup> its consequent relationship with actual bankruptcy<sup>use islikelyto differ.</sup> In addition to exploring the relationship between<sup>theuseof bankruptcyandthe</sup> features of creditor right regimes, we also want<sup>to investigate the relativerole of bank-</sup> oriented versus market-oriented financial systems. As discussed by Allen and Gale (1997), Levine (1999), and Demirguc-Kunt and<sup>Levine(1999),countriesdifferin the</sup> structure of their financial system. The relation of<sup>the orientationof the financial system</sup> with the use of bankruptcy is unclear, however. In<sup>bank-orientedeconomies, firms often</sup> depend on a single, powerful banking relationship<sup>asa primarysourceof allformsof</sup> extemal finance, which may include both debt<sup>andequityfinancing.In market-oriented</sup> economies, firms often have multiple bank<sup>lendersandwidelyheld publiclytraded</sup> equity. We would expect that the arms-length<sup>bankingrelationshipsfoundinmarket-</sup> oriented systems present more incentive for creditors<sup>touse formalbankruptcy measures</sup> to coordinate among creditors. As shown in Gilson,<sup>John,and Lang(1990), firms in the</sup> United States that use in-court bankruptcy proceedings<sup>haveasmaller percentageof debt</sup> owed to banks and a greater number of lenders.

This suggests that creditors in market-based economies<sup>maybenefitmorefrom</sup> those aspects of bankruptcy law that aim to overcome<sup>collectiveactionproblemsamong</sup> creditors. Also, firms in bank-oriented economies<sup>tendtohavecloserrelationshipswith</sup> their primary bank and the bank may also have<sup>anequityinvestmentinthefirm.</sup> Creditors in bank-oriented economies may therefore<sup>havelessneedor belessinclinedto</sup> use formal (and costly) bankruptcy filings to resolve<sup>financial distress.</sup> Evidence for Japan and Germany indeed suggests that borrowers'<sup>mainbanksnotonlyhelp avoid</sup> 11
costly financial distress, but also act as coordinator of financial<sup>supportand restructuring</sup> in times of financial distress. On the other hand, since firms<sup>in bank-orientedeconomies</sup> have typically greater percentages of bank debt, we might<sup>expecthigherleverage to lead</sup> to a higher number of bankruptcies in bank-oriented systems. Also, in bank-based systems there may be more scope for conflicts of interest between<sup>theroleof banksas</sup> creditor and as equityholder. More generally, a bank-oriented<sup>systemmayhave more</sup> scope for perverse relationships between financial institutions<sup>andcorporations.</sup> For example, Claessens, Djankov, and Klapper (2002) show that<sup>firmsin East Asiawitha</sup> bank as their controlling shareholder are less likely to use<sup>bankruptcyasameansof</sup> resolving financial distress.

Furthernore, we want to test whether countries with<sup>moresignificantnew</sup> business entry restrictions have fewer bankruptcy filings. The<sup>lack of entry would make</sup> for a less competitive industry, which in turn could imply fewer<sup>exits,asdiscussed</sup> extensively in the industrial organization literature (i.e., Hopenhayn,<sup>1992).6In previous</sup> literature, Dunne, Roberts, and Samuelson (1988) find that entry<sup>andexitrateswithin</sup> industries are highly correlated - industries with higher than<sup>average entryratestend to</sup> also have higher than average exit rates. We also want to explore<sup>the relationshipof the</sup> distribution of firm size with the occurrence of bankruptcy.<sup>On onehand,a larger share</sup> of small firms may reduce the number of bankruptcy relative<sup>to the total number of fimns,</sup> as small firms are less likely to incur the cost of a formal bankruptcy<sup>procedure.On the</sup> other hand, small firms may be more risky and consequently a<sup>large shareof smallfirms</sup> in an economy may raise the relative number of bankruptcies. In addition to these 6 For a review of the literature see Caves (1998).

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variables, we also expect that the general development of the country, the occurrence of a systemic banking crisis, and the level of economic growth will affect the relative use of bankruptcy.

# **3. Data and Summary Statistics**

The number of total commercial bankruptcy filings was collected from government and private sources around the world for all available years between 19901999.7 We include the sum of all firms that file for liquidation or reorganization under the bankruptcy code. This measures the total use of the bankruptcy law and the judicial system to resolve corporate financial distress. In order to compare the relative use of bankruptcy cross-country, we normalize the number of bankruptcy filings. We use the total number of firms, as provided by Djankov, La Porta, Lopez-de-Silanes, and Shleifer (2002) and official country statistical handbooks.<sup>8</sup> Tables 1 and 2 show some summary statistics for the countries in our sample panel.

To explain the relative use of bankruptcy, we include as explanatory variables measures of macroeconomic performance, financial structure, efficiency of judicial system, other institutional measures, and the specific creditor rights discussed above. We expect that the number of failed firms depends on a country's current and expected 7 See Appendix 1 for the country sources. In part because, there is variation across countries in the definition and implications of bankruptcy, we include all legal proceedings designed to either liquidate or rehabilitate an insolvent firm. Results were qualitatively robust to analyzing only liquidation procedures for those countries that identified those numbers separately.

8 For seven countries, only the total number of manufacturing firms is available. For these countries we extrapolate the total number of firms by sector and legal origin (English, French, etc.). All empirical results are robust to the exclusion of these countries.

13
economic performance, as measured by the<sup>performanceandgrowthofGDP.</sup> We therefore include lagged real GDP per capita in US$,<sup>RGDPPCt .,andthelagged1-year</sup> growth rate of real GDP, GDPGt.1.<sup>9</sup> We expect<sup>countries experiencingnegativegrowth to</sup> have higher rates of defaults. We also control for<sup>periods of systemic bankingcrises with</sup> data from Caprio and Klingebiel (2000), D_CRISISt.1<sup>, whichmay indicateperiodsof not</sup> only economic slowdown but also periods during<sup>which borrowersare more constrained</sup> in finding additional bank financing and more<sup>likelytofileforbankruptcy.Wealso</sup> include lagged real interest rates as a measure of<sup>thecostof financing,RINTERESTt.</sup> 1<sup>,</sup> expecting to find that higher real interest rates<sup>are associated with moredefaults.</sup> To measure the relative orientation of banks versus<sup>equitymarkets,weincludea</sup> dummy variable provided by Demirguc-Kunt<sup>andLevine(1999),D_BNKORIENT,that</sup> identifies countries as market- versus bank-oriented,<sup>dependingonthe relative</sup> importance of intermediated (bank) versus direct<sup>(capital) financialmarkets. Totest</sup> whether countries with more significant entry restrictions<sup>have fewerbankruptcyfilings,</sup> we use the data collected in Djankov, La Porta,<sup>Lopez-de-Silanes, and Shleifer (2002)on</sup> the restrictiveness of entry-the time to establish<sup>anewbusiness-totest whetherentry</sup> and exit rates tend to be correlated across countries.<sup>Thisvariableis calledTIME.We</sup> also test for the effect of a higher concentration of<sup>SMEs,measuredas the percentageof</sup> employment attributed to SMEs collected by Klapper<sup>andSulla(2002) and denotedhere</sup> by SME_SHARE.

9 The subscript, t, indicates a time series. All other<sup>variablesare constantovertime,but</sup> vary by country.

14
We include dummies to indicate legal origins - FRENCH, ENGLISH, GERMAN, SCANDINAVIAN, and TRANSITION. These origins proxy broadly for creditor rights, with English, common law countries being regarded<sup>asmorecreditor-</sup> friendly, whereas French, civil law countries are regarded as more<sup>debtor-friendly.</sup> However, these variables also capture other aspects, including<sup>theadaptabilityofthe</sup> legal system and elements of the efficiency of the legal system.<sup>Inadditiontoincluding</sup> legal origins, which are exogenously determined, we expect the implementation<sup>of laws</sup> to be a significant factor and therefore also include an index of the<sup>efficiencyand</sup> integrity of the legal environment, RULE of LAW, as reported for most countries<sup>byLa</sup> Porta et al. (1998) and for transition economies by Pistor (2000). As an alternative measure regarding the efficiency of the judicial system, we use a "legality"<sup>index,which</sup> is the weighted average of indexes provided by Business International Corporation<sup>of the</sup> Efficiency of the Judiciary, Rule of Law, Corruption, Risk of Expropriation,<sup>and Riskof</sup> Contract Repudiation (Berkowitz, et al., 2002).Io Finally, we use the La Porta et al. (1998) index of<sup>CREDITORRIGHTS,</sup> consisting of the summation of four dummy variables, RESTRICTIVE REORGANIZATION, NO AUTOMATIC STAY ON ASSETS,<sup>SECUREDCREDITOR</sup> PRIORITY, and MANAGEMENT DOESN'T STAY, with a highest<sup>possiblescoreof</sup> four." l We also use the individual sub-indexes.

° This index is unavailable for transition economies.

l Almost all countries have formal liquidation and reorganization laws (see<sup>Appendix2).</sup> 15
# **4. Empirical Results**

We set up the regressions as a panel of country and years. Since<sup>we do nothave</sup> the same number of years in which we have observation on bankruptcy rates for each country (Table 2), we have an unbalanced panel of 273 observations. Our first regression results are shown in Table 3. The specification used always includes the level of GDP per capita, lagged GDP growth rate, a dummy for whether the country<sup>experienceda</sup> systemic financial crisis during the period, and the real interest rate. Column<sup>(1)</sup> shows the base regression results. We find that countries with higher levels of<sup>realGDPper</sup> capita have higher uses of bankruptcy. This suggests that greater overall<sup>developmentis</sup> consistent with greater judicial efficiency and more court usage. Lagged<sup>GDP growth</sup> rate has the expected negative sign, and is statistically significant at the 10%<sup>level.The</sup> systemic crisis dummy has the expected positive sign, but is not statistically significant. The real interest variable has a positive sign as well, but<sup>isalsonotstatistically</sup> significant.

The next regression, Column 2, includes the market orientation variable.<sup>The</sup> significantly positive coefficient on D_MKTORIENT shows that<sup>bankruptcyuseis</sup> greater in countries with more use of market financing and less in bank-based<sup>systems.</sup> This supports our hypothesis that countries in which banks have closer relationships<sup>with</sup> borrowing firms have less dispersed creditors and thus less need for<sup>court-driven</sup> coordination among creditors, and are less likely to use bankruptcy<sup>toresolvefinancial</sup> distress.

Table 3, Column 4, shows the effect of the ease of new business entry<sup>on theuse</sup> of bankruptcy. We find a significantly positive relationship between<sup>the time requiredto</sup> 16
operate a new business and the use of bankruptcy<sup>-countriesinwhichitis more</sup> restrictive and difficult to open a new business also have lower<sup>ratesof bankruptcy.One</sup> explanation is that both procedures - registering a new<sup>businessand filingfor bankruptcy</sup> - are dependent on an efficient public sector, including an<sup>efficient judicialsystem. This</sup> seems not generally the case, however. Germany,<sup>for example,which has a highindex of</sup> judicial efficacy, requires a relatively long time to start a new<sup>business,90 workingdays,</sup> and has a relatively low average bankruptcy rate of 1.03%<sup>over theperiod.Incontrast,</sup> Canada, which also has a high level of judicial efficiency, requires<sup>only2daysto start a</sup> new business and has a relatively high average bankruptcy rate of<sup>2.96%.The significant</sup> relationship may rather mean that countries that allow easy<sup>business entrypermita more</sup> natural "learning-curve", during which relatively more firms are<sup>expected tofail,while</sup> countries that require, for example, more documentation of qualifications<sup>andfinancial</sup> backing, may have lower rates of business defaults. Another, complementary explanation is that countries which restrict competition through<sup>entryalsoassurethe</sup> profitability and allow the survival of less efficient firms,<sup>thuskeepingtheoverall</sup> bankruptcy rate low.

In Column _5_ we include the share in total employment by small<sup>andmedium</sup> sized enterprises (SMEs). This variable is collected from<sup>a varietyof sourcesovera</sup> number of years and as such is perhaps not as robust an indicator<sup>of theimportanceof</sup> small firms to the economy. It is, however, very significantly<sup>negative,suggestingthat</sup> the SMEs are less likely to use bankruptcy courts. This may be<sup>becauseof the highfixed</sup> costs involved in using legal proceedings and courts,<sup>whichmakesusingformal</sup> bankruptcy less efficient for SMEs. Furthermore, SMEs may<sup>relymore onasmaller</sup> 17
number of creditors, making out of court<sup>negotiationsmorelikely.Also,SNIEfailures</sup> may more likely reflect "economic" distress, which<sup>suggeststhat SMEsthat fail haveless</sup> need for bankruptcy procedures to preserve<sup>goingconcernvaluethroughformal</sup> distribution of firm assets. 12 Finally, in Column 5 we introduce individual<sup>country-dummies and we findthat</sup> the significance of some of the variables changes.<sup>Inparticular,thelevelof GDPper</sup> capita and the lagged output growth rates<sup>arenotlongerstatistically significant,which</sup> can be expected as the country dummies<sup>controlfor muchof eachcountry'soverall</sup> macroeconomic environment. The systemic crisis dummy becomes statistically significant, however, while the real interest<sup>rate keepsits positive,but stillinsignificant</sup> sign.

We next introduce the legal variables for our complete<sup>sample.Westart with the</sup> relationship between legal origins and bankruptcy<sup>rates.Table4, Column (1)shows that</sup> countries with French and German civil law<sup>codes-whicharetypicallycategorizedas</sup> having weaker creditor rights - use bankruptcies<sup>significantlylessthancountriesinthe</sup> common law orientations.<sup>13</sup> In addition, we find that transition countries<sup>havelower use</sup> of bankruptcy, perhaps because their legal<sup>codes andjudicialsystemsarenewerand</sup> because creditors and borrowers have less experience<sup>usingthe courtsto resolvedistress.</sup> Column (2) includes the index of rule of law,<sup>whichproxies for theefficiencyof thelegal</sup> environment. We find this measure to be significantly<sup>positivelyrelatedtothe</sup> 12 This result may also be partially explained<sup>by thehighcorrelationbetweenthesizeof</sup> the SME sector and legal origins as shown in<sup>Klapper and Sulla (2002).</sup> 13 The exception is Scandinavia, which has<sup>significantly higherbankruptciesthan English</sup> countries, although this may be a result of<sup>Scandinavia'srecent bankingcrisisandthe</sup> fact that all Scandinavian countries are high-income.

18
occurrence of bankruptcy - the greater the likelihood of a creditor speedily and successfully collecting in the court, the more likely creditors are to use formal and costly bankruptcy proceedings in the case of default. When we include both legal origin and rule of law, Column (3), we find that both are statistically significant, but that the coefficient for the rule of law variable loses some of its significance. This can probably be explained by the correlation between the legal family of a country and the efficiency of its legal system (as already noted by La Porta et al. (1998)).14 Next we study the importance of the overall strength of creditor rights by including the index CREDITOR RIGHTS in the regression in Column 4. Interestingly, the overall strength of creditor rights is not statistically significant related to the occurrence of bankruptcy across countries. An argument could be made that on one hand stronger rights deter bankruptcy - as debtors and creditors both avoid risky financing patterns and prefer to negotiate out of court in times of financial distress.1<sup>5</sup> On the other hand, stronger rights allow bankruptcy procedures to be used more effectively. The net effect may be that the aggregate creditor rights are not statistically significantly related to the occurrence of bankruptcy. When we also include the degree of judicial efficiency in Column 5, we find that the coefficient for creditor rights remains statistically insignificant. This provides some support for the hypothesis that the overall strength of creditor rights has two offsetting effects: the deterrence part, with a negative relationship 14 As a robustness check, we substitute the rule of law index with the legality index for all regressions and we find that our results remain equally significant. However, for these regressions we cannot include the transition countries as the rule of law index is not available.

_15_ However, often, even in the US, when parties reach an agreement outside of court they frequently formally file for bankruptcy to avoid future contract disputes.

19
with bankruptcy use, and the<sup>actual usagepart,withapositiverelationship with</sup> bankruptcy use. The latter relationship<sup>ispickedupinpartinthisregressionbythe</sup> efficiency of the legal system, making<sup>the coefficient for creditor rights morenegative.</sup> Thus far our interpretation is based<sup>onananalysisof thestrengthof aggregate</sup> creditor rights, and not yet its individual<sup>components.Asdiscussedbefore,eachof the</sup> four separate creditor rights may have<sup>a differenteffect on theoccurrenceof bankruptcy,</sup> which may explain why we did not<sup>finda statisticallysignificanteffectof theaggregate</sup> creditor rights index on bankruptcy<sup>use.</sup> We therefore next analyze the relationship between the four separate indexes<sup>andtheoccurrenceof bankruptcy,withregression</sup> results reported in Table<sup>**5.16**</sup> Of the<sup>four subindexes,oneisstatisticallysignificantly</sup> positive - RESTRICTIVE REORGANIZATION<sup>inColumn1 -andoneisstatistically</sup> significant negative - NO AUTOMATIC<sup>STAYONASSETS,inColumn2.Theother</sup> two subindexes are not statistically<sup>significant. Thissuggeststhatthe deterrenceand</sup> actual usage effects vary by creditor<sup>rights.Thepresenceof restrictionsforgoing into</sup> reorganization, such as creditors' consent,<sup>seemstoprovidecreditorswithmorelegal</sup> tools and lead to more bankruptcy.<sup>Theabilityof securedcreditorto seize assetseven</sup> when a firm has filed for reorganization<sup>(noautomaticstay),incontrast, seemsto deter</sup> bankruptcy. This suggests that the presence of<sup>anautomaticstaysaimedatavoiding</sup> creditor races strengthens the overall<sup>leverageof creditors.Itisinteresting that priority</sup> of secured creditors is not significant.<sup>Thismayindicatethataprioritycreditor rights</sup> feature deters risky behavior and thus<sup>reducesthe probabilityof bankruptcy.It may also</sup> 16 These regressions exclude transition<sup>economiessincedata on the subindicesof creditor</sup> rights is unavailable. As a result, the number<sup>of observationsdropsfrom273 to252.</sup> 20
be that laws permitting secured creditors rights are less important than having a business environment that allows, for example, easy registering of collateral and the presence of courts which speedily enforce secured claims (before the creditor can liquidate the asset). Note that in these regressions we control for the effects of the judicial efficiency on the likelihood of bankruptcy by including our legality variable that has consistently a positive relationship with the number of bankruptcies.

To further test the interaction between the effects of judicial efficiency and the individual and aggregate creditor rights, we run a set of regressions where we include, in addition to the creditor rights (sub-) indexes and the judicial efficiency index, also the interaction between the two indexes. As shown in Table 6, we find that the coefficients for the interaction variables between the aggregate creditor rights index and most of the creditor rights subindexes have statistically significant negative signs, with the exception of NO AUTOMATIC STAY ON ASSETS, which is significantly positive. At the same time, the creditor rights index and the subindexes themselves are mostly statistically significantly positive.'<sup>7</sup> This suggests that in countries with high judicial efficiency the credible threat of speedy action by the courts combined with strong creditor rights deters risky behavior and encourages out-of-court negotiations. However, speedy action by the courts in itself leads to more usage of bankruptcy, as does the presence of stronger creditor rights. This in turn suggests that in countries with weak judicial proceedings creditors will use bankruptcy - a costly resolution - only if they have strong entitlements. In others words, in weak judicial settings rights may have to be stronger to compensate for inefficiencies in the courts.

7 The only exception is that of the NO AUTOMATIC STAY ON ASSETS index.

21
# 5. **Conclusion**

In this paper we report the relative number of commercial<sup>bankruptcy filingsin</sup> 35 countries. We use this data to investigate<sup>whichlegal,financialandothercountry</sup> characteristics affect the likelihood that a formal bankruptcy<sup>procedureis used.We find,</sup> correcting for overall development and macroeconomic<sup>shocks,thatmarket-oriented</sup> economies are more likely to use bankruptcy than bank-oriented<sup>economies.This may be</sup> attributed to the weaker banking relationships and<sup>the strongerneedfora legal</sup> framework to assist with coordination among creditors.<sup>We also find thatcountrieswith</sup> more efficient and speedy procedures to open a new<sup>businesshavegreaterbankruptcy</sup> use. This may reflect not only an overall more effective<sup>legaland regulatoryprocess, but</sup> also that firm entry and exit rates are related. And we<sup>findthatthepresenceofmore</sup> small and medium firms is associated with less<sup>usageof bankruptcy,whichmayreflect</sup> the costs of using formal bankruptcy procedures deterring<sup>use by smallerfirms.</sup> We find that bankruptcies are higher in Anglo-Saxon<sup>countries,but thatstronger</sup> creditor rights alone are not associated with more<sup>use of bankruptcy.Thereare important</sup> differences in these effects by individual creditor<sup>rights,however,andwefindthatthe</sup> presence of a "no automatic stay on assets" is associated<sup>with fewerbankruptciesand the</sup> presence in the law of a "restriction on reorganizations"<sup>withmorebankruptcies.These</sup> results are also not independent of the efficiency<sup>of the judicialsystem. Wefindthat</sup> greater judicial efficiency is associated with more<sup>useofbankruptcy,but thatthe</sup> combination of stronger creditor rights with greater<sup>judicialefficiencyleads tolessuse.</sup> These findings suggest that there are important<sup>incentiveeffectsof insolvencysystems</sup> combined with good judicial systems encouraging<sup>lessriskybehaviorandmoreout-of-</sup> 22
court settlements. They also suggest that in countries with weak judicial proceedings, strong creditor rights are more necessary to compensate for weaknesses in legal enforcement.

23
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26
# **Table 1: Summary Statistics, by Countrv**

Number of Bankruptcies was collected from sources listed in Appendix<sup>1.</sup> _BNKRPT_FRM_<sup>is the</sup> ratio of the number of bankruptcies to the number of firms.<sup>RealGDPpercapitainUS$</sup> _(RGDPPC),_ I-year growth rates of GDP _(GGDP),_ and real interest rates<sup>_(RINTEREST)_arefrom</sup> the International Financial Statistics. Statistics are reported as the average over<sup>theperiodof</sup> available years.

|**Country**|**Available**<br>**Years**|**Numberof**<br>**Bankruptcies**|BNKRPT_<br>**FRM(%)**|**RGDPPC**<br>(US$,**1995)**|**GGDP**<br>**(%)**|**RINTEREST**<br>**(%)**|
|---|---|---|---|---|---|---|
|_ARGENTINA_|92-99|2144.38|0.12|7,567.47|6.37|4.26|
|_AUSTRALLA_|90-99|5166.50|2.10|21,120.16|4.47|8.50|
|_AUSTRIA_|90-99|2065.10|1.33|28,774.78|2.58|3.73|
|_BELGIUM_|90-99|4850.20|2.59|26,784.65|2.10|3.32|
|_CANADA_|90-98|12696.67|2.96|19,280.07|1.93|6.29|
|_CHILE_|90-99|88.60|0.28|4,195.95|7.66|13.22|
|_COLOMBIA_|96-99|225.50|0.16|2,411.81|2.81|19.99|
|_CZECHREPUBLIC_|92-96|1729.40|1.49|4,755.23|-0.78|-2.33|
|_DENMARK_|90-99|2375.90|1.53|33,582.58|1.93|7.77|
|_FINLAND_|90-98|5106.11|4.14|25,587.28|1.39|6.34|
|_FRANCE_|90-99|51671.75|2.62|26,293.72|1.65|6.64|
|_GERMANY_|92-98|21152.57|1.03|29,782.87|1.46|8.43|
|_GREECE_|90-94|857.4|0.29|10,987.33|1.20|9.18|
|_HONGKONG_|90-98|1205.44|0.55|22,610.76|4.98|2.33|
|_HUNGARY_|92-96|8425.40|1.99|4,252.39|-2.22|4.74|
|_IRELAND_|90-99|788.60|2.74|17,580.34|6.47|5.23|
|_ITALY_|90-96|8663.14|0.54|18,431.58|1.61|7.64|
|_JAPAN_|90-99|14000.60|0.22|41,709.64|2.18|3.61|
|_NETHERLANDS_|90-99|4154.56|1.30|9,780.62|5.75|3.29|
|_NEWZEALAND_|93-98|716.00|3.67|27,106.94|3.44|5.63|
|_NORWAY_|90-98|3546.56|1.83|15,981.80|3.54|9.42|
|_PERU_|93-99|145.14|0.05|31,786.32|3.44|8.02|
|_POLAND_|90-96|3319.57|0.23|2,180.54|4.92|26.87|
|_PORTUGAL_|91-99|516.44|0.08|2,984.64|0.99|-5.34|
|_RUSSIA_|95-98|2770.75|0.31|10,791.99|2.73|7.95|
|_SINGAPORE_|90-99|227.80|3.06|2,274.35|-4.80|51.49|
|_SOUTHAFRICA_|90-99|2918.60|4.62|21,414.20|8.06|4.03|
|_SOUTHKOREA_|90-98|162.67|0.17|3,944.43|1.38|6.54|
|_SPAIN_|90-99|518.60|0.02|14,764.81|2.59|5.91|
|_SWEDEN_|90-99|13917.10|7.61|27,088.16|1.36|7.57|
|_SWITZERLAND_|90-98|9212.56|3.33|44,345.91|1.08|3.71|
|_THAILAND_|90-99|346.73|0.12|2,480.25|6.03|7.34|
|_TURKEY_|98-99|1496.00|0.86|3,149.98|5.31|-5.44|
|_UNITEDKINGDOM_|923-98|46583.83|1.85|18,942.57|2.61|3.75|
|_UNITEDSTATES_|90-99|55752.60|3.65|27,344.91|2.97|5.56|

27
# **Table 2: Summary Statistics, by Country**

_D_MKTORIENT_ is a dummy equal to 1 if the<sup>countryismarket-orientedandequalto0if the</sup> country is bank-oriented (Demirguc-Kunt and Levine,<sup>1999).</sup><sup>_TIME_isthenumberof business</sup> days required for a business to become operational<sup>(Djankovetal.,2000).</sup><sup>_SME_SHARE_is the</sup> percentage of total employment in the SME sector<sup>(Kiapper and Sulla, 2002.)</sup><sup>_RULE OF LA W_is</sup> an index of legal and judicial efficiency (La Porta,<sup>etal.,1998and Pistor, 2000.)</sup><sup>_CREDITOR_</sup> _RIGHTS_ is an index from I to 4 (La Porta, et<sup>al.,1998andPistor,2000.)</sup>

|**Cou**<br>**Country**|**nryMITORENTT**<br>**D_MKTORIENT|**|**U%E**<br>**TIME**|**SMSARE**<br>**SME_SHARE**|**LEGAL**<br>**ORIGINS**|**RULE**<br>**OFLAW**|**CREDITOR**<br>**RIGHTS**|
|---|---|---|---|---|---|---|
|ARGENTINA|0|71|70|French|5.35|1|
|AUSTRALIA|1|3|40|English|10<br>|I<br>|
|AUSTRIA|0|154|57<br>|German<br>|10<br>|3<br>|
|BELGIUM|0|42|55|French<br>|10<br>|2<br>|
|CANADA|1|2|56|English|10|1|
|CHILE|1<br>|78<br>|90<br>|French<br>|7.02<br>|2<br>|
|COLOMBIA|0|N/A|67|French|2.08|0<br>|
|CZECHREPUBLIC|0|97|65|Transition|8.3|3|
|DENMARK|1<br>|21<br>|70<br>|Scandinavian<br>|10<br>|3<br>|
|FINLAND|0|32|45|Scandinavian<br>|10<br>|1<br>|
|FRANCE|0|53|64|French<br>|8.98<br>|0<br>|
|GERMANY|0|90<br>|76<br>|German<br>|9.23<br>|3<br>|
|GREECE|0|53|74<br>|French<br>|6.18<br>|1<br>|
|HONGKONG|1|41|60|French|8.22<br>|4<br>|
|HUNGARY|0|53|64|Transition|8.7|3.75|
|IRELAND|0|25<br>|50<br>|English<br>|7.8<br>|1<br>|
|ITALY|0|121<br>|73<br>|French<br>|8.33<br>|2<br>|
|JAPAN|0|50|78|German|8.98|2|
|NETHERLANDS|1|68|60|French|10|2|
|NEWZEALAND|0|17|54<br>|English<br>|10<br>|3<br>|
|NORWAY|0|24|54|Scandinavian<br>|10<br>|2<br>|
|PERU<br>|1<br>|171<br>|68<br>|French<br>|2.5<br>|0<br>|
|POLAND|0|26|75|Transition|8.7<br>|2.25<br>|
|PORTUGAL|0|99|70|French|8.68<br>|1<br>|
|RUSSIA|0|N/A<br>|10<br>|Transition<br>|3.7<br>|3<br>|
|SINGAPORE|I|36|N/A<br>|English<br>|8.57<br>|4<br>|
|SOUTHAFRICA|1|30|N/A|English<br>|4.42<br>|3<br>|
|SOUTH KOREA|1|46|82|German|5.35|3|
|SPAIN|0|83|70<br>|French<br>|7.8<br>|2<br>|
|SWEDEN|1|17|57|Scandinavian|10|2|
|SWITZERLAND|1|88|70|German|10|1|
|THAILAND|1|39|N/A|French|6.25|3<br>|
|TURKEY|1|55|61<br>|French<br>|5.18<br>|2<br>|
|UNITEDKINGDOM|I|11|43|English|8.57|4|
|UNITEDSTATES|1|7|52|English|10|1|

28
# Table 3: Cross-Country Regressions

The dependent variable is the ratio of the number of bankruptcies to the number of firms. The regressions are estimated using ordinary least squares with robust standard errors. _LN(GDPPC)_ is the log of GDP Per Capita. _GGDP_ is the 1-year growth rate of real GDP. _D_SYSTCRISIS_ is a dummy equal to I in the case of a systemic bank crisis (Caprio and Klingebiel, 2000). _RINTEREST_ is real interest rates. _D_MKTORIENT_ is a dummy equal to I if the country is market-oriented and equal to 0 if the country is bank-oriented (Demirguc-Kunt and Levine, 1999). _TIME_ is the number of business days required for a business to become operational (Djankov et al., 2000). _SME SHARE_ is the percentage of total employment in the SME sector (Klapper and Sulla, 2002.) t-statistics are in parentheses, *, *, and *** indicate significance at 10%, 5%, and 1% respectively.

||(1)<br>**Base**<br>**Regression**|**(2)**<br>**Market**<br>**Orientation**|**_(3)_**<br>**Business**<br>**Entry**|**(4)**<br>**SMEs**|**_(5)_**<br>**With**<br>**Dummies**|
|---|---|---|---|---|---|
|_Constant_|0.8904<br>(1.53)|0.1730<br>(0.30)|2.2350***<br>(3.73)|4.1320***<br>(5.75)|-0.2300<br>(-0.45)|
|_LN(GDP_|0.0052***<br>_PC,.,)_(5.34)|0.0053***<br>(5.78)|0.0040***<br>(4.03)|0.0054***<br>(6.26)|-0.0034<br>**(-0.68)**|
|_GGDP,,_|-0.0704***<br>_(-2.59)_|-0.1003***<br>(-3.47)|-0.0994***<br>(-3.44)|-0.0206<br>(-0.75)|-0.0101<br>(-0.52)|
|_DSYSTCRISIS,-,_<br>_D_SYSTCR!SIS,,_|0.0692<br>(0.16)|0.3191<br>(0.77)|-0.2555<br>(-0.63)|0.4553<br>(1.14)|0.7054***<br>(3.05)|
|_RINTEREST,,_](-0.63)|-0.0052|-0.0087<br>(-1.07)|0.0323***<br>(2.90)|-0.0199<br>(-1.62)|0.0088<br>(1.34)|
|_D MKTOR_<br>_D_MKTORIENT_|_IENT_<br>________|~~~1.1239***<br>(4.98)||||
|_TIME_|||-0.0208***|||
|_SME_SHARE_<br>_ _<br>_|_**_**_ _ _ _ _ _ _ _ _**_** <br>_ _<br>_ _ _ _ _ _ _|_ _|_ _ _ _ _ _ _ _ _ _ _ _|-0.0576***<br>(-7.5<br>4)||
|_CountryDummies_|No|No|No|No|Yes|
|_YearDummies_|Yes|Yes|Yes|Yes|Yes|
|_Adj.R-Squared_|0.14|0.24|0.31|0.36|0.91|
|_Observations_|273|273|265|243|273|

29
# **Table 4: Cross-Country Regressions with**<sup>**LegalOrisins and Leual Efficiency**</sup>

The dependent variable is the ratio of the<sup>numberof bankruptciesto the numberof firms.The</sup> regressions are estimated using ordinary<sup>leastsquareswithrobuststandarderrors.</sup><sup>_LN(GDPPC)_</sup> is the log of GDP Per Capita. _GGDP_ is the 1-year<sup>growthrateof realGDP.</sup><sup>_D_SYSTCRISIS_is a</sup> dummy equal to 1 in the case of a systemic<sup>bankcrisis(CaprioandKlingebiel,2000).</sup> _RINTEREST_ is real interest rates. _FRENCH,_<sup>_GERMAN,_and</sup><sup>_SCANDINAVIAN_aredummies</sup> indicating legal origin (La Porta, et al., 1998).<sup>_RULE OF L4 W_is anassessmentof the"efficiency</sup> and integrity" of the legal environment as<sup>measure by BusinesInternationalCorp (La Porta,et al.</sup> 1998 and Berkowitz, et al., 2000.) _CREDITOR_<sup>_RIGHTS_isthesumof dummiesidentifying</sup> Restrictive Reorganizations, No Automatic<sup>Stayon Assets,SecuredCreditorsPaidFirst,and</sup> Management Does Not stay in Reorganization<sup>(La Porta,et al.,1998 and Pistor,2000.) t-statistics</sup> are in parentheses, *, *, and *** indicate significance<sup>at 10%,5%, and1%respectively.</sup>

||(1)|**(2)**|**(3)**|**(4)**|**_(5)**|
|---|---|---|---|---|---|
||Le<br>**Ogalin**<br>**Ori**<br>_<br>_<br>_ _<br>_|gal<br>**RuleofLaw**<br>**gin**<br> <br>_<br>_<br>_ _<br>_<br>_ _<br>_<br>_ _|**~~~~~~Legal**<br>**Originand**<br>**~~~Ruleof**<br>**L aw**|**Creditor**<br>**Rights**|**Creditor**<br>**R**<br>**and**<br>**RuleofLaw**|
|_Constant_|3.1452***<br>(6.11)|-0.4398<br>(-0.55)|2.8068***<br>(4.53)|0.9798*<br>(1.76)<br>|-0.3225<br>(-0.43)<br>|
|_LN(GDPPC,,J_|0.0022***<br>(2.32)|0.0020<br>(1.57)<br>|0.0009<br>_(0.65)_<br>|0.0052***<br>(5.33)<br>|0.0018<br>(1.43)<br>|
|_GGDPI-I_<br>_GG_<br>,|-0.0990***<br>(4.32)|-0.0560**<br>(-1.93)|-0.0986***<br>(4.26)<br>|-0.0705***<br>(-2.59)<br>|-0.0558**<br>(-1.92)<br>|
|_D_SYSTCRlSlS,,_Z(0.19)|0.0666|0.0464<br>(0.11)|0.0657<br>(0.19)|0.0792<br>(0.18)|0.0620<br>(0.15)<br>|
|_RINTEREST,,_|-0.0108*<br>_(-1.61)_|0.0075<br>(0.74)|-0.0077<br>(-1.08)|-0.0060<br>(-0.72)|0.0064<br>(0.65)|
|_FRENCH_<br>_FRENVCH_<br>r|-~~2.352***<br>-.<br>5**-.33*<br>~~~~~(-12.64)||-2.3323***<br>(-11.95)|||
|_GERMAeN_|-2.3996***<br>(-12.48)||-2.2680***<br>(-10.16)|||
|_SCANDINAVUN_<br>_SCA N DIN_<br>_AVIAN _|_0._(01600***<br>~~(0.34)|<br>_ _<br>_<br>_<br>_<br>_|0.2032<br>(0.44)<br>|_<br>_<br>_<br>_<br>_||
|_TRANSIT_|-2.4683***<br>_(-5.62)_||-2.5908***<br>(-5.61)|||
|_CREDITORRIGHTS_<br>________|_____**________**<br>_<br>__||____________|-0.0414<br>(-0.54)|-0.0667<br>_(-0.85)_|
|_RULEOFLAW_|_RULE_|0.2533***<br>_OF LA W_<br>(2.89)|0.0725**<br>(2.16)||0.2584***<br>(2.81)|
|_YearDummies_|Yes|Yes|Yes|Yes|Yes|
|_Adj.R-Squared_|0.50|0.17|0.50|0.14|0.17|
|_Observations_|273|273|273|273|273|

30
# **Table 5: Cross-Country Regressions with Creditor Rights and Legal Efficiency**

The dependent variable is the ratio of the number of bankruptcies to the number of firms. Transition countries are excluded from all regressions because of the unavailability of disaggregated creditor rights. The regressions are estimated using ordinary least squares with robust standard errors. _LN(GDPPC)_ is the log of GDP Per Capita. _GGDP_ is the 1-year growth rate of real GDP. _D_SYSTCRISIS_ is a dummy equal to 1 in the case of a systemic bank crisis (Caprio and Klingebiel, 2000). _RINTEREST_ is real interest rates. _CREDITOR RIGHTS_ is the sum of dummies identifying Restrictive Reorganizations, No Automatic Stay on<sup>Assets,Secured</sup> Creditors Paid First, and Management Does Not stay in Reorganization (La Porta, et al., 1998) _RULE OF LAW_ is an assessment of the "efficiency and integrity" of the legal environment as measure by Business Intemational Corp (La Porta, et al. 1998 and Pistor, 2000.) t-statistics are in parentheses, *, *, and *** indicate significance at the 10%, 5%, and 1% respectively.

||(1)|**(2)**|**(3)**|**(4)**|**(5)**|
|---|---|---|---|---|---|
||**Creditor**<br>**Rights**|**Restrictive**<br>**Reorganization**|**NoAutomatic**<br>**Asets**|**Secured**<br>**PaidFirst**|**Management**<br>**DoesNotStay**|
|_Constant_|-0.3620<br>(-0.44)|-0.4936<br>(-0.59)|0.0931<br>(-0.11)|-0.2632<br>(-0.32)|-0.6489<br>(-0.85)|
|_LN(GDPPC,1-)_|-0.0011<br>(-0.65)|-0.0014<br>(-0.82)|-0.0014<br>(-0.80)|-0.0012<br>(-0.71)|-0.0010<br>(-0.57)|
|_GGDP,,_|-0.1040**<br>(-2.44)|-0.1068***<br>(-2.65)|-0.0993***<br>(-2.56)|-0.1024**<br>(-2.37)|-0.1060***<br>(-2.55)|
|_D_SYSTCRISIS,.,_|0.3072<br>(0.58)|0.3739<br>(0.72)|0.1153<br>(0.22)|0.3444<br>(0.64)|0.2558<br>(0.46)|
|_RINTEREST,_1_<br>_RINTEREST,,_|0.0004<br> <br>(0.03)|-0.0007<br>(-0.04)|-0.0114<br>(-0.77)|-0.0025<br>(-0.16)|0.0074<br>(0.47)|
|_CREDITOR RIGHTS_|(-0.34)1|||||
|_RESTRICTIVE_<br>_REORGANIZATION_||0.5378**<br>(2.12)||||
|_NOA UTOMATICSTA Y_<br>_ONASSETS_|||-0.9093***<br>(4.75)|||
|_SECUREDCREDITOR_<br>_PAIDFIRST_||||-0.2384<br>(-0.77)||
|_MANAGEMENTDOES_<br>_NOTSTAY_|||||0.2073<br>(0.79)|
|_RULEOFLAW_|0.3506***<br>(3.61)|0.3393***<br>(3.76)|0.3715***<br>(3.83)|0.3623***<br>(3.55)|0.3654***<br>(4.28)|
|_YearDummies_|Yes|Yes|Yes|Yes|Yes|
|_Adj.R-Squared_|0.18|0.20|0.23|0.18|0.18|
|_Observations_|252|252|252|252|252|

31
# Table 6: Cross-Country Regressions with Creditor<sup>Rights and Legal Efficiencv</sup>

The dependent variable is the ratio of the number<sup>of bankruptcies to the number of firms.Transition</sup> countries are excluded from all regressions because<sup>of theunavailabilityofdisaggregatedcreditor</sup> rights. The regressions are estimated using ordinary least<sup>squareswith robust standarderrors.</sup> _LN(GDPPC)_ is the log of GDP Per Capita. _GGDP_ is the 1-year growth rate of real GDP. _D_SYSTCRISIS_ is a dummy equal to 1 in the case of<sup>a systemicbank crisis(Caprio andKlingebiel,</sup> 2000). _RINTEREST_ is real interest rates. _CREDITOR_<sup>_RIGHTS_is thesumof dummies identifying</sup> Restrictive Reorganizations, No Automatic Stay<sup>onAssets,SecuredCreditorsPaid First,and</sup> Management Does Not stay in Reorganization<sup>(LaPorta,etal., 1998)</sup> _RULE OF LAW_ is an assessment of the "efficiency and integrity" of<sup>thelegalenvironmentas measure byBusiness</sup> International Corp (La Porta, et al. 1998 and Pistor,<sup>2000.)t-statisticsareinparentheses,*, *,and</sup> *** indicate significance at the 10%, 5%, and 1% respectively.

||(1)|**(2)**|**(3)**|**(4)**|**(5)**|
|---|---|---|---|---|---|
||Creditor<br>**Rights**|Restrictive<br>**Reorganization**|No**Automatic**<br>**Stayon**Assets|Creditor<br>**PaidFirst**|Management<br>**Does**NotStay|
|_Constant_|-2.6197***<br>(-3.23)<br>|-2.0861***<br>(-3.09)<br>|0.2174<br>(0.24)<br>|-1.0766<br>(-1.46)<br>|-2.3879***<br>(-3.19)<br>|
|_LN(GDPPC,d)_|0.0010<br>(0.51)|0.0001<br>(0.07)|-0.0019<br>(-1.09)|-0.003<br>(-0.17)<br>|-0.0001<br>(-0.35)<br>|
|_CGDP,,_|-0.0817**<br>(-2.07)|-0.0669*<br>(-1.75)|-0.0937<br>(-2.47)|-1.011***<br>(-2.38)|-0.0609<br>(-1.52)|
|_DSYSTCRISIS,,_|0.2075<br>(0.38)|0.5557<br>(1.05)|0.2499<br>(0.48)|0.3105<br>(0.56)|0.4216<br>(0.80)|
|_RINTEREST,j_<br>,-1|0.0401*<br>~~~~~(1.8|0.0270*<br>7)<br>(1.68)|-0.0184<br>(-1.14)|0.0108<br>(0.53)|0.0339*<br>_<br>(1.87)|
|_CREDITOR RIGHTS_|1.2829*)*||||_|
|_RESTRICTIVE_<br>_REORGANIZATION_||4.3785***<br>(3.35)||||
|_NOAUTOMATICSTAY _<br>_ONASSETS_|||-2.4162***<br>(-2.95).,|||
|_SECUREDCREDITOR_<br>_PAIDFIRST_||||0.9607*<br>(1.76)||
|_MANAGEMENTDOES_<br>_NOTSTAY_<br>_._|||||4.3929***<br>_(3.35)_<br>|
|_RULEOFLAW _|0.5479***<br>(6.10)|0.4629***<br>(6.01)|0.3499***<br>(3.53)|0.4423***<br>_(5.99)_|0.5273***<br>(5.77)|
|_RULEOFLAW*_<br>_CREDITOR RIGHTS_|-0.1654***<br>(-2.89)|.||||
|_RULEOFLAW * RESTRICTIVE_<br>_REORGANIZATION_||-0.4602***<br>(-2.97)||||
|_LEALITY*NOA UTOMATIC_<br>_STAYONASSETS_|||0.1785*<br>(1.88)|||
|_RULEOFLAW*SECURED_<br>_CREDITORPAIDFIRST_||||-0.1579<br>_(-1.12)_||
|_RULEOFLAW*MANAGEMENT_<br>_DOESNOTSTAY _|||||-0.5447***<br>(-3.30)<br>|
|_YearDummies_|Yes|Yes|Yes|Yes|Yes|
|_Adj.R-Squared_|0.22|0.25|0.24|0.19|0.23|
|_Observations_|252|252|252|252|252|

32
**APPendix 1: Sources of Bankruptcv Data**

|**Country**|**Source**|
|---|---|
|_AUSTRALIA_|AustralianSecuritiesandInvestmentCommission|
|_BELGIUM_|NationalStatisticalOffice|
|_CANADA_|OfficeofTheSuperintendentOfBankruptcy|
|_CHILE_|FiscalNacionalDeQuiebras|
|_COLOMBIA_|Supersociedades<br>|
|_CZECHREPUBLIC_|EuropeanBankofResearchand Development(EBRD)|
|_DENMARK_|Statistics Denmark|
|_FINLAND_|StatisticsFinland<br>|
|_FRANCE_|Institut Nationaldela Statistique etdesEtudesEconomiques<sup>(INSEE)</sup>|
|_GERMAN'Y_|Wirtschaftsanalyse|
|_GREECE_|NationalStatisticalServiceofGreece|
|_HONGKONG_|GovernmentofHongKong|
|_-HUNGARY_|EBRD<br>|
|_IRELAND_|DeptofEnterprise,TradeandEmployment|
|_ITALY_|AnnuariodiStatisticeh Giudiziarie|
|_JAPAN_|TeikokuDataBank|
|_KOREA_|OECDSecialReport|
|_NETHERLANDS_|Statistics Netherland<br>|
|_NEWZEALAND_|NZInsolvencyandTrustee Service|
|_NORWAY_|Statistics Norway|
|_PERU_|INDECOFI|
|_POLAND_|EBRD|
|_PORTUG-AL_|MinistryofJustice<br>|
|_RUSSIA_|Russian EconomicTrendsQuarterly- CenterforEconomic<sup>Reforms</sup>|
|_SINGAPORE_|OfficialReceiver andPublicTrusteeOffice,Singapore|
|_SPAIN_|National(Spanish)StatisticsInstitute|
|_SWEDEN_|Statistics Sweden|
|_SWITZERLAND_|SchweizerischenVerbandCreditform|
|_THAILAND_|StatisticalOffice|
|_TURKEY_|GovernmentofTurkey|
|_UNITEDKINGDOM_|DepartmnentofTradeandIndustry|
|_UNITEDSTATES_|American BankruptcyInstitute|

33
**Appendix 2: Bankruptcv Laws on the Books**

|_County_|**Liquidation**<br>**Procedure**|**Reorganization**<br>**Procedure**|
|---|---|---|
|_ARGENTINA_|**1**|**1**<br>|
|_AUSTRALIA_|**1**|**1**|
|_AUSTRIA_|I<br>|1<br>|
|_BELGIUM_|1|1|
|_CANADA_|1<br>|1<br>|
|_CHLE_|1|1|
|_COLOMBIA_||_1_<br>I<br>|
|_CYPRUS_|1|1|
|_CZECHREP_|1|_1_|
|_DENMARK_|1|1|
|_FINLAND_|1<br>|0<br>|
|_FRANCE_|1|1|
|_GERMANY_|1<br>|1<br>|
|_HONGKONG_|_1_|I|
|_HUNGARY_|1|1<br>|
|_ICELAND_|1|_1_|
|_IRELAND_|1|1|
|_ISRAEL_|1|1|
|_ITALY_|1<br>|_1_<br>|
|_JAPAN_|1|1|
|_NETHERLANDS_|1|1<br>|
|_NEWZEALAND_|1|0|
|_NORWAY_|1<br>|1<br>|
|_PERU_|1|1|
|_POLAND_|1<br> <br>|1<br>|
|_PORTUGAL_|1<br>I|_1_|
|_RUSSIANFED_|1|I<br>|
|_SINGAPORE_|1|_1_|
|_SLOVAKIA_|I|1|
|_SOUTHAFRICA_|I|1|
|_SPAIN_|1|1|
|_SWEDEN_|1|1|
|_SWITZERLAND_|1|_1_|
|_THAILAND_|1|1|
|_TURKEY_|1|_1_|
|_UK_|1|1|
|_USA_||_1_|
|_URUGUAY_|1|1|

34
# **Policy Research Working**<sup>**PaperSeries**</sup>

||**Title**|**Author**|**Date**|**Contact**<br>**forpaper**|
|---|---|---|---|---|
|WPS2837<br>|Reform,Growth,andPoverty<br>inVietnam|David Dollar|May 2002|E.Khine<br>37471|
|WPS2838<br>|EconomicMobilityinVietnam<br>inthe 1990s|PaulGlewwe<br>PhongNguyen|May2002|E.Khine<br>37471|
|WPS2839<br>|MarketingExternalities<sup>and</sup><br>Market Development|M.ShaheEmran<br>ForhadShilpi|May2002|F.Shilpi<br>87476|
|WPS2840|PublicSpendingandOutcomes:<br>DoesGovernanceMatter?|AndrewSunilRajkumar<br>Vinaya Swaroop|May2002|H.Sladovich<br>37698|
|WPS2841|Contractual SavingsinCountries<br>withaSmallFinancialSector|GregorioImpavido<br>AlbertoR.Musalem<br>DimitriVittas|May2002|P.Braxton<br>32720|
|WPS2842|FinancialSectorInefficiencies<br>andtheDebtLafferCurve|Pierre-RichardAgenor<br>JoshuaAizenman|May2002|M.Gosiengfiao<br>33363|
|WPS2843<br>|APracticalGuidetoManaging<br>SystemicFinancial Crises:AReview<br>of ApproachesTakeninIndonesia,<br>theRepublicofKorea,andThailand|DavidScott|May 2002|L.Yeargin<br>81553|
|WPS2844|MoneyDemandinVenezuela:<br>MultipleCycle Extractionina<br>CointegrationFramework|MarioA.Cuevas|May2002|M.Geller<br>85155|
|WPS2845|TheSpatialDivisionofLabor<br>inNepal|MarcelFafchamps<br>Forhad Shilpi|May2002|F.Shilpi<br>87476|
|WPS2846|IsIndia's EconomicGrowth<sup>Leaving</sup><br>thePoorBehind?|GauravDatt<br>MartinRavallion|May2002|C.Cunanan<br>32301|
|WPS2847|TheNatureandDynamics<sup>ofPoverty</sup><br>DeterminantsinBurkinaFaso<br>inthe1990s|HippolyteFofack|May2002|P.White<br>81131|
|WPS2848|AdministrativeBarriers<sup>toForeign</sup><br>InvestmentinDevelopingCountries|JacquesMorisset<br>OlivierLumengaNeso|May2002|M.Feghali<br>36177|
|WPS2849|Pooling,Savings,andPrevention:<br>MitigatingtheRisk of Old Age<br>PovertyinChile|TrumanG.Packard|May2002|T.Packard<br>75841|
|WPS2850|DeterminantsofCommercial<sup>Bank</sup><br>PerformanceinTransition:An<br>ApplicationofDataEnvelopment<br>Analysis|DavidA.Grigorian<br>VladManole|June2002|S.Torres<br>39012|
|WPS2851|Economic Developmentand<sup>the</sup><br>World Trade OrganizationAfterDoha|Bernard Hoekman|June2002|P.Flewitt<br>32724|
|WPS2852|RegionalAgreements<sup>andTradein</sup><br>Services:Policyissues|AadityaMattoo<br>Carsten Fink|June2002|P.Flewitt<br>32724|
|WPS2853|PrivateInterhousehold Transfers<sup>in</sup><br>Vietnaminthe EarlyandLate 1990s|DonaldCox|June2002|E.Khine<br>37471|
# **Policy Research Working Paper Series**

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|---|---|---|---|---|
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|WPS2860|PrivatizationinCompetitiveSectors:<br>TheRecordtoDate|SunitaKikeri<br>JohnNellis|June2002|R.Bartolome<br>35703|
|WPS2861|Trade-Related TechnologyDiffusion<br>and theDynamicsofNorth-South<br>andSouth-SouthIntegration|MauriceSchiff<br>YanlingWang<br>MarceloOlarreaga|June2002|M.Kasilag<br>39081|
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|WPS2863|GettingConnected: Competition<br>andDiffusioninAfrican Mobile<br>TelecommunicationsMarkets|FrewAmareGebreab|June2002|P.Sintim-Aboagye<br>38526|
|WPS2864|TelecommunicationsReformin<br>Uganda|MaryM.Shirley<br>F. F.Tusubira<br>FrewAmareGebreab<br>Luke Haggarty|June2002|P.Sintim-Aboagye<br>38526|