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Bankruptcy and the difficulty of firing

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  • Stef, Nicolae
Abstract
Firms may use layoffs as an ex ante mechanism to avoid filing for bankruptcy. However, the national labor law may impose some restrictions that delay or hamper the firing decision of the employer. This study proposes a different legal pathway for policymakers whose goal is to reduce the use of bankruptcy without acting on the design of the bankruptcy law. Using a sample of 33 countries from 2007 to 2015, we show that the total amount of firing restrictions leads to more bankruptcies. The employer’s legal obligation to notify a third party prior the dismissal of one employee tends to increase the number of bankruptcies. It is very likely that the employer’s rescue strategy endures an intense ex post monitoring of the employment contracts and/or a strong legal opposition to the layoff decision from such third party. In addition, labor codes that apply priority rules in case of reemployment can increase the use of bankruptcy.

Suggested Citation

  • Stef, Nicolae, 2018. "Bankruptcy and the difficulty of firing," International Review of Law and Economics, Elsevier, vol. 54(C), pages 85-94.
    • Handle: RePEc:eee:irlaec:v:54:y:2018:i:c:p:85-94
    DOI: 10.1016/j.irle.2017.11.002
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    Cited by:

    1. Stef, Nicolae & Zenou, Emmanuel, 2021. "Management-to-staff ratio and a firm's exit," Journal of Business Research, Elsevier, vol. 125(C), pages 252-260.
    2. Sami Ben Jabeur & Nicolae Stef & Pedro Carmona, 2023. "Bankruptcy Prediction using the XGBoost Algorithm and Variable Importance Feature Engineering," Computational Economics, Springer;Society for Computational Economics, vol. 61(2), pages 715-741, February.
    3. Nicolae Stef, 2021. "Institutions and corporate financial distress in Central and Eastern Europe," European Journal of Law and Economics, Springer, vol. 52(1), pages 57-87, August.
    4. Nicolae Stef, 2023. "Bankruptcy voting process and corporate reorganization," Bulletin of Economic Research, Wiley Blackwell, vol. 75(2), pages 508-524, April.
    5. Stef, Nicolae, 2022. "How does legal design affect the initiation of a firm's bankruptcy?," Economic Modelling, Elsevier, vol. 114(C).
    6. Stef, Nicolae & Dimelis, Sophia, 2020. "Bankruptcy regime and the banking system," Economic Modelling, Elsevier, vol. 87(C), pages 480-495.
    7. Stef, Nicolae & Bissieux, Jean-Joachim, 2022. "Resolution of corporate insolvency during COVID-19 pandemic. Evidence from France," International Review of Law and Economics, Elsevier, vol. 70(C).
    8. Ben Jabeur, Sami & Serret, Vanessa, 2023. "Bankruptcy prediction using fuzzy convolutional neural networks," Research in International Business and Finance, Elsevier, vol. 64(C).
    9. ben Jabeur, Sami & Mefteh-Wali, Salma & Carmona, Pedro, 2021. "The impact of institutional and macroeconomic conditions on aggregate business bankruptcy," Structural Change and Economic Dynamics, Elsevier, vol. 59(C), pages 108-119.
    10. Jabeur, Sami Ben & Gharib, Cheima & Mefteh-Wali, Salma & Arfi, Wissal Ben, 2021. "CatBoost model and artificial intelligence techniques for corporate failure prediction," Technological Forecasting and Social Change, Elsevier, vol. 166(C).

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    More about this item

    Keywords

    Bankruptcy; Layoff; Labor;
    All these keywords.

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law

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