The willingness of banks and investors to support new businesses depends a great deal on the rules that govern failing businesses. Effective insolvency regimes save struggling firms when possible, or reallocate assets of failing firms more productively. These procedures—focused on the end of the business life cycle—have a profound impact on the beginning.
Banks and investors are more willing to lend when they know they can recover at least some of their investment. Entrepreneurs are more willing to enter the market
when they are not putting their entire personal fortunes at risk.
This Viewpoint examines literature that quantifies the impact of effective insolvency regimes. It was prepared under the World Bank Group Debt Resolution & Business Exit (DRBE) program, under the leadership of Mahesh Uttamchandani. The DRBE program is part of the World Bank Group’s Trade & Competitiveness Global Practice Business Regulation work, led by Najy Benhassine.
