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Creditor Rights and Entrepreneurship: Evidence from Fraudulent Transfer Law

Author

Listed:
  • Nuri Ersahin
  • Rustom M. Irani
  • Katherine Waldock

Abstract

We examine entrepreneurial activity following the adoption of fraudulent transfer laws in the U.S. These laws strengthen creditor rights by removing the burden of proof from creditors attempting to claw back funds that were transferred out of failing businesses. These laws are particularly important for entrepreneurs whose personal assets are often commingled with those of the venture. Using establishment-level data from the U.S. Census Bureau, we find significant declines in start-up entry, churning among new entrants, and closures of existing ventures after the passage of these laws. Our findings suggest that strengthening creditor rights can, in some circumstances, impede entrepreneurial activity and slow down the process of creative destruction.

Suggested Citation

  • Nuri Ersahin & Rustom M. Irani & Katherine Waldock, 2016. "Creditor Rights and Entrepreneurship: Evidence from Fraudulent Transfer Law," Working Papers 16-31, Center for Economic Studies, U.S. Census Bureau.
  • Handle: RePEc:cen:wpaper:16-31
    as

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    File URL: https://www2.census.gov/ces/wp/2016/CES-WP-16-31.pdf
    File Function: First version, 2016
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Creditor Rights; Bankruptcy; Entrepreneurship; Creative Destruction; Law and Finance Ersahin;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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