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Entrepreneurship and Information on Past Failures: A Natural Experiment

Author

Listed:
  • C. Cahn
  • M. Girotti
  • A. Landier

Abstract

We analyze how public information on past entrepreneurial failure affects entrepreneurs’ ability to borrow. We exploit a policy shock from 2013 in France, which eliminated a highly salient public reporting to banks of managers involved in non-fraudulent corporate liquidations. We find that the flag removal makes failed entrepreneurs significantly more likely to restart a business or to borrow from a surviving business, despite the fact that bankers can find the failure information from other public sources for a small cost. Restarters create companies that have a higher probability of default.

Suggested Citation

  • C. Cahn & M. Girotti & A. Landier, 2017. "Entrepreneurship and Information on Past Failures: A Natural Experiment," Working papers 644, Banque de France.
  • Handle: RePEc:bfr:banfra:644
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    File URL: https://publications.banque-france.fr/sites/default/files/medias/documents/dt-644.pdf
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    References listed on IDEAS

    as
    1. Francine Lafontaine & Kathryn Shaw, 2016. "Serial Entrepreneurship: Learning by Doing?," Journal of Labor Economics, University of Chicago Press, vol. 34(S2), pages 217-254.
    2. Djankov, Simeon & McLiesh, Caralee & Shleifer, Andrei, 2007. "Private credit in 129 countries," Journal of Financial Economics, Elsevier, vol. 84(2), pages 299-329, May.
    3. Sergei Kovbasyuk & Giancarlo Spagnolo, 2016. "Memory and Markets," EIEF Working Papers Series 1606, Einaudi Institute for Economics and Finance (EIEF), revised Oct 2017.
    4. Paul Goldsmith-Pinkham & Will Dobbie & Neale Mahoney & Jae Song, 2016. "Bad credit, no problem? Credit and labor market consequences of bad credit reports," Staff Reports 795, Federal Reserve Bank of New York, revised 01 May 2017.
    5. Marieke Bos & Leonard I. Nakamura, 2012. "Should defaults be forgotten? Evidence from legally mandated removal," Working Papers 12-29, Federal Reserve Bank of Philadelphia, revised 01 Apr 2013.
    6. Leonard I. Nakamura & Marieke Bos, 2014. "Should defaults be forgotten? Evidence from variation in removal of negative consumer credit information," Working Papers 14-21, Federal Reserve Bank of Philadelphia, revised 01 Jul 2014.
    7. Ronel Elul & Piero Gottardi, 2015. "Bankruptcy: Is It Enough to Forgive or Must We Also Forget?," American Economic Journal: Microeconomics, American Economic Association, vol. 7(4), pages 294-338, November.
    8. Marianne Bertrand & Antoinette Schoar, 2003. "Managing with Style: The Effect of Managers on Firm Policies," The Quarterly Journal of Economics, Oxford University Press, vol. 118(4), pages 1169-1208.
    9. David K. Musto, 2004. "What Happens When Information Leaves a Market? Evidence from Postbankruptcy Consumers," The Journal of Business, University of Chicago Press, vol. 77(4), pages 725-748, October.
    10. Rodano, Giacomo & Serrano-Velarde, Nicolas & Tarantino, Emanuele, 2016. "Bankruptcy law and bank financing," Journal of Financial Economics, Elsevier, vol. 120(2), pages 363-382.
    11. Ginger Zhe Jin & Phillip Leslie, 2003. "The Effect of Information on Product Quality: Evidence from Restaurant Hygiene Grade Cards," The Quarterly Journal of Economics, Oxford University Press, vol. 118(2), pages 409-451.
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    More about this item

    Keywords

    Entrepreneurship; Access to credit; Bankruptcy.;

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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