The economic gains from reforming insolvency law in Europe

The Association for Financial Markets in Europe (AFME), today released a AFME report on the benefits of reforms to insolvency regimes in Europe. Frontier (Europe) conducted the econometric work and analysis presented in the report, which estimates that the payoffs from EU insolvency regimes converging to best practice to be worth up to 78 billion Euros per year for the EU28 as whole. Such convergence could also create up to 1.2 million jobs.

Frontier’s analysis is based on a model that measures the effects of changes in insolvency regime quality on the cost of capital, as measured by the risk premium on corporate bonds. It controls for the effects of other variables of institutional quality. The findings support efforts to increase the flexibility of insolvency regimes, notably by increasing the scope for restructuring options. It is also a contribution to extending the evidence-base on the effects of insolvency reform, and, more generally, to the literature on the relationship between measures of institutional quality and economic growth.

Frontier regularly supports clients through the application of econometric techniques to measure and evaluate the effects of policy reforms.

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Potential economic gains from reforming insolvency law in Europe