Bankruptcy Reform Act of 2005 and Entrepreneurial Activity

Abstract:     
This paper investigates the effect of the bankruptcy reform act of 2005, formally known as the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), on entrepreneurial activity, measured by the likelihood of switching into self-employment. The analysis of this paper suggests that the probability of becoming self-employed with an unincorporated firm, regardless of firm size, declined after the bankruptcy reform act of 2005, and in this way entrepreneurial activity decreased. On the other hand, the probability of becoming self-employed with an incorporated firm was virtually unchanged by the revised bankruptcy law. However, the size of the incorporated firm makes a difference with small incorporated firms being different from medium- or large- incorporated firms. That is, the probability of becoming self-employed with a small incorporated firm declined after the bankruptcy reform act of 2005 in a similar manner to the probability of becoming self-employed with an unincorporated firm, but the probability of becoming self-employed with a medium- or large-size incorporated firm does not change significantly.

Number of Pages in PDF File: 40

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