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Life After Death: A Field Experiment with Small Businesses on Information Frictions, Stigma, and Bankruptcy

Author

Listed:
  • Shai Bernstein
  • Emanuele Colonnelli
  • Mitchell Hoffman
  • Benjamin Iverson

Abstract

In an RCT with US small businesses, we document that a large share of firms are not well-informed about bankruptcy. Many assume that bankruptcy necessarily entails the death of a business and do not know about Chapter 11, where debts are renegotiated so that the business can continue operating. Firms also exhibit bankruptcy-related stigma, believing that bankruptcy is embarrassing, a sign of failure, and a negative signal to employees and customers. Short educational videos that address information or stigma increase knowledge and decrease stigma, both immediately and durably over 4 months. Videos increase reported interest in using Chapter 11 bankruptcy and increase intended debt and investment. However, we do not observe long-term real effects. A survey of bankruptcy attorneys and judges points to entrepreneurs’ overconfidence and, to a lesser extent, excessive perceived legal fees as first-order frictions explaining the limited real impact of treatments that only address information and stigma.

Suggested Citation

  • Shai Bernstein & Emanuele Colonnelli & Mitchell Hoffman & Benjamin Iverson, 2023. "Life After Death: A Field Experiment with Small Businesses on Information Frictions, Stigma, and Bankruptcy," NBER Working Papers 30933, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:30933
    Note: CF LE LS PR
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    Cited by:

    1. DiGiuseppe, Matthew & Del Ponte, Alessandro, 2023. "Bottom-Up Sovereign Debt Preferences," SocArXiv wxr67, Center for Open Science.

    More about this item

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • M5 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics

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