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SMEs’ Bankruptcy Risk in Europe: a “Law & Finance” Perspective – EURODEF

A panorama of corporate bankruptcy across Europe

A Law & Finance perspective

Analyzing the European bankruptcy procedures to understand the bankruptcy path of SMEs

The ability of European economies to face successfully the current crisis depends on the strength of their industrial systems, and especially on how SMEs can cope with the risk of default. Our project aims at analyzing the bankruptcy process of SMEs in Europe, by using a Law & economics perspective. We cover several aspects related to this question: causes of default, market values of assets, structure of claims, bankruptcy costs, recoveries, restructuring measures, liquidation & reorganization plans. <br />We analyze thousands of hand-collected individual data, stored and managed by commercial courts in 11 European countries. Such information is harmonized, and compared with the USA, a reference country in the fields of bankruptcy law. In a second step, we complement our data with legal indexes accounting for the bankruptcy codes prevailing at the national level (e.g., coordination, production of information, sanction of managers…). <br />This is one of the first studies of this kind realized at the European scale, allowing to understand better the corporate bankruptcy process, and to compare the attractiveness of the European bankruptcy procedures in their ability to manage financial distress.

Most of the information on SMEs deals with financial data (corporate reports), which is likely to be missing information at the time of default. We thus need more precise and qualitative data to develop a convincing analysis of SMEs. We gathered data from actual bankruptcy files (managed directly by the courts) and built original legal indexes, stemming from a thorough analysis of the content of national bankruptcy codes (expert analysis).
We had to take into account two main methodological constraints: i) reducing the heterogeneity of information (geographical locations and different bankruptcy systems) by using harmonized and comparable templates; ii) building binary legal indexes as precise as possible (allowing for the identification of the main functions of the bankruptcy law), and as simple as possible (avoiding any risk of subjectivity bias). To do so, we benefitted from a network of experts and of bankruptcy practitioners within each country part of the study.
We used statistical tools (econometrics, tests) to analyze the causes of default, the recovery rates, the bankruptcy costs, the duration of the procedures, etc. Our legal indexes were introduced in the models as additional explanatory variables, in order to isolate legal effects. Detailed information on the content of the bankruptcy codes also helped us to identify residual claims. Last, we used data analysis to map the various European bankruptcy systems.

I) Data collection: 11 European countries were analyzed (3000+ observations over the period 2000-2012, 250 variables, 300 binary legal indexes per country).
II) Findings: we isolated 2 groups of countries in our preliminary researches (Eastern & Western Europe): we found that Eastern European countries have successfully replicated important legal mechanisms prevailing in the Western legislations, such as competition between the rival claimholders. Overall, we find that the observed recoveries significantly depend on the local bankruptcy legislation (in particular, regarding confidentiality and coordination mechanisms). The performances of the bankruptcy procedures change with the outcome (liquidation vs. reorganization).

EURODEF opens a wide avenue for future researches for the next upcoming 5 years. We also aim at developing academic collaborations with US research teams (comparison between the US & European bankruptcy regimes). Other research questions shall be explored as well (classification of causes of default, empirical identification of residual claims, profiling, efficiency measures…).

Between January 2013 and August 2016 (during the (protected) data collection process), we wrote 7 research articles (5 directly linked with project EURODEF, 2 benefiting from externalities out of the project): 4 have been published in ranked academic journals, 2 are under revision, and 1 was submitted. Our researches were communicated and discussed in academic conferences in finance and L&E. We also shared our experience on this project as invited keynote speakers. Numerous research avenues have to be explored in the future, thanks to the quality of the information that was gathered during the program: several research papers are in progress. In a longer perspective, we may explore the idea of sharing our data with the academic community, through a dedicated website (however, we still have to design the accessing conditions: confidentiality, data ownership, etc.).
Note: Our templates are protected (copyright). Our data are confidential.

This research program aims at analyzing the bankruptcy process of European SMEs. Our approach encompasses, for the first time, all the aspects which are related to corporate bankruptcy, that is: origins of default, values of the assets, structure and concentration of the claims, direct and indirect bankruptcy costs, duration of the bankruptcy process, creditors’ recovery rates (secured and unsecured), restructuring measures (before and after the default), and liquidation / reorganization plans.
At first, we propose to analyze several thousands of bankruptcy files (4000-6000 European firms), hand-collected in bankruptcy courts in Europe (20 countries). Up to now, such data have never been collected in a systematic way, at the European level, and have not been studied following a comparative approach. In a second step, such individual data shall be mixed with original legal indicators (between 100 and 200) accounting for the legal environment of bankruptcy laws, all over Europe. Such indicators will be built by us.

Project coordinator

Monsieur Régis BLAZY (Laboratoire de Recherche en Gestion et Economie)

The author of this summary is the project coordinator, who is responsible for the content of this summary. The ANR declines any responsibility as for its contents.


LARGE, Université de Strasbourg Laboratoire de Recherche en Gestion et Economie

Help of the ANR 170,000 euros
Beginning and duration of the scientific project: December 2012 - 36 Months

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