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Bankruptcy policy reform and total factor productivity dynamics in Korea : Evidence from macro data

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Frame of Image in are those of the authors and not necessarily those of the National Bureau of Economic Research. ©2003 by Youngjae Lim and Chin Hee Hahn. All rights reserved. Short sections of text not to exceed two paragraphs, may be quoted without explicit permission provided that full credit including © notice, is given to the source.
Bankruptcy Policy Reform and Total Factor Productivity Dynamics in Korea: Evidence from Micro Data Youngjae Lim and Chin Hee Hahn NBER Working Paper No. 9810 June 2003 JEL No. K0, L1, N8, O0, O4 ABSTRACT Using the firm level panel data, obtained from the period between during , this study shows that the failing firms, accepted in the court-administered rehabilitation procedures after the post-crisis bankruptcy reform in Korea, had experienced less persistent problems in the pre-bankruptcy TotalFactor-Productivity (TFP) performances than those before the reform. The most crucial element of the post-crisis reform in the post-crisis court-administered bankruptcy system is the implementation of an economic efficiency criterion, whereas the pre-reform system benefited failing firms deemed as having high social value and prospects for rehabilitation. The new system removes the possibilities for interested parties to oppose the exit of the firms without economic values. Then, to get an idea of how the bankruptcy policy reform would affect the performance of aggregate TFP, we assess the role of the creative destruction process of entry and exit in total factor pro


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Title Bankruptcy policy reform and total factor productivity dynamics in Korea
Similar Titles
Sub Title

Evidence from macro data

Material Type Reports
Author(English)

Lim, Youngjae; Hahn, Chin Hee

Publisher

Cambridge:National Bureau of Economic Research

Date 2003
Series Title; No Working Paper / 9810
Pages 51
Subject Country South Korea(Asia and Pacific)
Language English
File Type Documents
Original Format pdf
Subject Economy < Financial Policy
Holding National Bureau of Economic Research

Abstract

Using the firm level panel data, obtained from the period between during , this study shows that the failing firms, accepted in the court-administered rehabilitation procedures after the post-crisis bankruptcy reform in Korea, had experienced less persistent problems in the pre-bankruptcy Total- Factor-Productivity (TFP) performances than those before the reform. The most crucial element of the post-crisis reform in the post-crisis court-administered bankruptcy system is the implementation of an economic efficiency criterion, whereas the pre-reform system benefited failing firms deemed as having high social value and prospects for rehabilitation. The new system removes the possibilities for interested parties to oppose the exit of the firms without economic values. Then, to get an idea of how the bankruptcy policy reform would affect the performance of aggregate TFP, we assess the role of the creative destruction process of entry and exit in total factor productivity growth utilizing plant level panel data in the Korean manufacturing sector during the 1990-98 period. For this purpose, we document the plant entry and exit rates, examine the dynamic relationship between plant turnovers and plant productivity, and quantify the contribution from entry and exit to productivity growth. We conclude that, for sustained total factor productivity growth, it is important to establish policy or institutional environment where efficient businesses succeed and inefficient businesses fail.