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Small Business Bankruptcy

Author

Listed:
  • Michelle J. White

    (Department of Economics, University of California, San Diego, La Jolla, California 92093
    National Bureau of Economic Research, Cambridge, Massachusetts 02138)

Abstract

Bankruptcy is the legal process by which financially distressed firms and individuals resolve their debts. It is an important part of the legal environment for small business owners and their lenders because small businesses are very risky and often fail and because bankruptcy law affects how business owners and their lenders are treated in the event of failure. Both personal and corporate bankruptcy law are relevant for most small businesses, as even when businesses are incorporated, lenders often require that business owners personally guarantee loans to the business. This article discusses theoretical models and empirical tests of how bankruptcy law affects small business, including the effects of bankruptcy law on incentives to start and remain in business, how bankruptcy law affects small business credit, and whether bankruptcy law leads to efficient decisions concerning whether failing businesses reorganize or liquidate. Research using small business data from both the United States and other countries is covered in this survey.

Suggested Citation

  • Michelle J. White, 2016. "Small Business Bankruptcy," Annual Review of Financial Economics, Annual Reviews, vol. 8(1), pages 317-336, October.
    • Handle: RePEc:anr:refeco:v:8:y:2016:p:317-336
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    File URL: http://www.annualreviews.org/doi/10.1146/annurev-financial-121415-032856
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    Citations

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    Cited by:

    1. Jaka Cepec & Peter Grajzl, 0. "Management turnover, ownership change, and post-bankruptcy failure of small businesses," Small Business Economics, Springer, vol. 0, pages 1-27.
    2. Luca Fare & Marcus Dejardin & Eric Toulemonde, 2023. "Bankruptcy recovery rate and small businesses' innovation," DeFiPP Working Papers 2302, University of Namur, Development Finance and Public Policies.
    3. Sadeghi, Ali & Kibler, Ewald, 2022. "Do bankruptcy laws matter for entrepreneurship? A Synthetic Control Method analysis of a bankruptcy reform in Finland," Journal of Business Venturing Insights, Elsevier, vol. 18(C).
    4. Nicos Zafiris, 2018. "Why We Should Change Our Attitude Towards Distressed Firms," Economic Affairs, Wiley Blackwell, vol. 38(1), pages 74-87, February.
    5. Jaka Cepec & Peter Grajzl, 2021. "Management turnover, ownership change, and post-bankruptcy failure of small businesses," Small Business Economics, Springer, vol. 57(1), pages 555-581, June.
    6. Sundgren, Stefan & Alexeyeva, Irina, 2022. "Entrepreneurs’ legal infractions and hidden information: Evidence from small business bankruptcies," International Review of Law and Economics, Elsevier, vol. 69(C).

    More about this item

    Keywords

    financial distress; corporate bankruptcy; personal bankruptcy; liquidation; reorganization; fitting failure; fresh start; debt discharge;
    All these keywords.

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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