[Séminaire CREM] Does a high bankruptcy recovery rate help small businesses to engage in entrepreneurial innovation?

Abtract:
We investigate whether a bankruptcy system providing a good chance of credit recovery in case of firms’ insolvency helps small businesses to engage in entrepreneurial innovation. The fear of not being repaid often restricts the lenders’ credit supply to smaller enterprises, which find then more difficult to finance risky innovative project. A higher recovery rate is expected to ease the access to credit and, consequently, to foster the investment in innovation. From a toy model we derive three propositions that are empirically tested using a large sample of micro, small and medium enterprises (MSMEs) from 30 European countries. We show that an increase in the bankruptcy recovery rate a) unleashes MSMEs’ investments in entrepreneurial innovation (investment effect); b) reduces the share of credit constrained MSMEs (constraint effect); c) reduces the interest rate dispersion for high profitable MSMEs (dispersion effect).

Co-écrit avec Eric Toulemonde, UNamur.