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Bankruptcy Law and Entrepreneurship

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Author Info
John Armour
Douglas Cumming

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Abstract

Entrepreneurs, catalysts for innovation in the economy, are increasingly the object of policymakers’ attention. Recent initiatives both in the UK and at EU level have sought to promote entrepreneurship by reducing the harshness of the consequences of personal bankruptcy law. Whilst there is an intuitive link between the two, little attention has been paid to the question empirically. We investigate the link between bankruptcy and entrepreneurship using data on self employment over 13 years (1990-2002) and 15 countries in Europe and North America. We compile a new index of the level of how ‘forgiving’ personal bankruptcy laws are, reflecting the time to discharge. This measure varies over time and across the countries studied. We show that bankruptcy law has a more statistically and economically significant effect on self employment rates relative to GDP growth, MSCI stock returns, and a variety of other legal and economic factors. The results have clear implications for policymakers.

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Publisher Info
Paper provided by ESRC Centre for Business Research in its series ESRC Centre for Business Research - Working Papers with number wp300.

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Date of creation: Mar 2005
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Handle: RePEc:cbr:cbrwps:wp300

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Related research
Keywords: Personal Bankruptcy Law; Entrepreneurship;

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Find related papers by JEL classification:
K35 - Law and Economics - - Other Substantive Areas of Law - - - Personal Bankruptcy Law
M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
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    Other versions:
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. André Stel & David Storey & A. Thurik, 2007. "The Effect of Business Regulations on Nascent and Young Business Entrepreneurship," Small Business Economics, Springer, vol. 28(2), pages 171-186, March. [Downloadable!] (restricted)
    Other versions:
  2. Césaire A. Meh & Yaz Terajima, 2008. "Unsecured Debt, Consumer Bankruptcy, and Small Business," Working Papers 08-5, Bank of Canada. [Downloadable!]
  3. Adam B. Ashcraft & Astrid A. Dick & Donald P. Morgan, 2007. "The Bankruptcy Abuse Prevention and Consumer Protection Act: means-testing or mean spirited?," Staff Reports 279, Federal Reserve Bank of New York. [Downloadable!]
  4. Peter Egger & Christian Keuschnigg & Hannes Winner, 2009. "Incorporation and Taxation: Theory and Firm-level Evidence," Working Papers 0908, Oxford University Centre for Business Taxation. [Downloadable!]
    Other versions:
  5. Brendan Burchell & Alan Hughes, 2006. "The stigma of failure: An international comparison of failure tolerance and second chancing," ESRC Centre for Business Research - Working Papers wp334, ESRC Centre for Business Research. [Downloadable!]
  6. Robin Mason & Helen Weeds, 2007. "Merger Policy, Entry, and Entrepreneurship," Economics Discussion Papers 634, University of Essex, Department of Economics. [Downloadable!]
  7. John Armour, 2006. "Legal capital: an outdated concept," ESRC Centre for Business Research - Working Papers wp320, ESRC Centre for Business Research. [Downloadable!]
  8. Chad Moutray, 2008. "Educational Attainment and Other Characteristics of the Self-Employed: An Examination using Data from the Panel Study of Income Dynamics," The Office of Advocacy Small Business Working Papers 07cm, U.S. Small Business Administration, Office of Advocacy. [Downloadable!]
  9. Andre van Stel & David Storey & Roy Thurik, 2006. "The effect of business regulations on nascent and actual entrepreneurship," Papers on Entrepreneurship, Growth and Public Policy 2006-04, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group. [Downloadable!]
  10. Michelle J. White, 2008. "Bankruptcy: Past Puzzles, Recent Reforms, and the Mortgage Crisis," NBER Working Papers 14549, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Arup Daripa & Simone Varotto, 2005. "Ex Ante Versus Ex Post Regulation of Bank Capital," Birkbeck Working Papers in Economics and Finance 0518, Birkbeck, Department of Economics, Mathematics & Statistics. [Downloadable!]
    Other versions:
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