What Influences the Number of Bankruptcies?

Abstract

After having remained relatively stable from the mid-1990s, the number of bankruptcies rose sharply in 2002 and 2003, but then fell again last year and in the first six months of 2005. Using an empirical model, we analyse factors underlying developments in bankruptcies. We find that changes in profit margins, competitiveness and real interest rates, as well as cyclical fluctuations in the Norwegian and international economy, have been among the most important driving forces since 2002. The analysis indicates that deteriorating competitiveness in 2002 as a result of a strong krone exchange rate and high wage growth contributed in particular to the marked increase in the number of bankruptcies. The depreciation of the krone exchange rate in 2003 and into 2004, combined with moderate wage growth from 2003, helped to improve competitiveness in Norwegian enterprises. This explains a considerable portion of the recent fall in the number of bankruptcies.