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Personal Bankruptcy, Asset Risk, and Entrepreneurship: Evidence from Tenancy-by-the-Entirety Laws

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  • Jeffrey Traczynski

Abstract

Personal bankruptcy law affects entrepreneurs' decision-making and small-business credit markets. I show that personal asset protections affect small-business operations and funding sources using tenancy-by-the-entirety (TBE) laws, a novel source of variation in demand for loans and in bankruptcy exemptions. Tenancy-by-the-entirety laws are associated with firms having fewer business assets and less labor input from firms' owners, which reflects possible moral hazard or credit constraints restricting firms' asset accumulation. This effect arises through changes in firms' funding sources necessary to obtain TBE protections. Unlike bankruptcy exemptions, I find no evidence that TBE laws are associated with higher rates of entrepreneurship.

Suggested Citation

  • Jeffrey Traczynski, 2019. "Personal Bankruptcy, Asset Risk, and Entrepreneurship: Evidence from Tenancy-by-the-Entirety Laws," Journal of Law and Economics, University of Chicago Press, vol. 62(1), pages 151-179.
    • Handle: RePEc:ucp:jlawec:doi:10.1086/701302
    DOI: 10.1086/701302
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    Cited by:

    1. Pattison, Nathaniel & Millimet, Daniel L., 2023. "A Tale of Two Bankruptcies: Geographic Differences in Bankruptcy Chapter Choice," IZA Discussion Papers 16105, Institute of Labor Economics (IZA).
    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.

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