The recession is taking its toll on many businesses, but the rate of corporate bankruptcies in Canada is unusually low compared to the rate in the U.S. That’s because the Canadian economy is stronger than its U.S. counterpart, according to a group of CEOs polled recently by COMPAS Inc.
Corporate bankruptcies in Canada tend to rise and fall with those in the U.S. A recent report from CIBC World Markets, however, found that business bankruptcies are actually falling in Canada while rising in the U.S. at a rate not seen since 1975 — quite a different trend from past recessions. (Personal bankruptcies in both countries are still increasing, however.)
The report’s author, senior economist Benjamin Tal, proposed that the Canadian response to the recession has been to lay off workers rather than close branches and plants, which is resulting in fewer businesses going belly up for now.
But only 34% of the CEOs in the COMPAS poll agreed with Tal. Instead, 86% of the respondents said the lower rate of corporate bankruptcies here has to do with the fact that Canadian financial institutions did not make vast amounts of non-performing housing loans like those south of the border. More than 75% said the Canadian economy as a whole is fundamentally stronger than the American one, despite our dependence on the U.S. for exports.
“The USA is a nation of consumers with very little to sell; Canada is a nation of producers with lots of resources to sell,” wrote one respondent.
Others attributed our relatively good performance to the conservative nature of Canadians. “Canadians are less risk-taking than Americans, particularly in the banking field. We also tend to have less of a knee-jerk response to bad news,” according to one CEO. “Fundamentally, most Canadian companies are more conservative and therefore have less leverage than U.S. companies,” wrote another respondent.
But another business leader reminded us not to get too smug about such studies: “Regardless of how strong the Canadian economy is and how prudent Canadian financial institutions are, Canada is totally dependent on the global economy and its biggest customer — the USA.”