The 'cleansing effect' of recessions: Inefficient firms fail, average productivity goes up

Osotimehin, Sophie (2017) The 'cleansing effect' of recessions: Inefficient firms fail, average productivity goes up. LSE Business Review (05 Sep 2017). Website.

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Abstract

During the Great Recession, the percentage of US establishments going bankrupt increased from 11.8 per cent to 13.5 per cent. Similar increases in business failures have been observed in other countries hit by the recession. The conventional view is that the increase in the exit rate (when firms fail and thus exit the market) raises average productivity, because the recession allows resources to be reallocated from failing firms to surviving ones that are more productive. But does this ‘cleansing effect’ of recessions hold when companies face financial constraints?

Item Type:	Online resource (Website)
Official URL:	http://blogs.lse.ac.uk/businessreview/
Additional Information:	© 2017 The Author(s)
Divisions:	LSE
Subjects:	H Social Sciences > HG Finance
Date Deposited:	18 Oct 2017 13:49
Last Modified:	11 Dec 2024 16:00
URI:	http://eprints.lse.ac.uk/id/eprint/84806

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