Taking advantage of a rich database of more than 1 million companies in Spain, France and the U.K., we propose and test a hypothesis to explain why Spain has one of the world’s lowest business bankruptcy rates, even during the current economic crisis and after controlling for market exit...

The paper warns about the potential efficiency losses associated with low business bankruptcy rates (number of firms filing for bankruptcy as a proportion of the total stock of firms) and shows that welfare could be improved by increasing the protection of creditors in the bankruptcy system....

Small businesses, the majority of Spanish fi rms, rarely fi le for formal bankruptcy, and this has been the case even during the current economic crisis. This suggests that bankruptcy law has a limited role to play in the distress of small fi rms. We propose an explanation based on two premises:...