Abstract

http://ssrn.com/abstract=1982819
 
 

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Failure Is an Option: Bankruptcy Reform and New Firm Performance


Robert Eberhart


Santa Clara University - Department of Management

Charles E. Eesley


Stanford University - Management Science & Engineering

Kathleen M. Eisenhardt


Stanford University - Management Science & Engineering

February 26, 2016

Rock Center for Corporate Governance at Stanford University Working Paper No. 111

Abstract:     
Does an institutional change that makes bankruptcy more lenient enhance venture growth? We take advantage of a quasi-natural experiment in Japan to examine this question using longitudinal data over a 10-year period. We find that bankruptcy reform not only increases the rates of bankruptcy and founding, but also improves the likelihood of higher growth ventures. This occurs because bankruptcy reform disproportionately attracts elite individuals (i.e., those with superior human and social capital) who are particularly likely to begin high growth ventures. Broadly, we contribute at the nexus of institutional theory and entrepreneurship by placing venture growth and the importance of elites in the spotlight, and by highlighting the unique implications of exit for founding and venture growth. We find that lower entry barriers encourage marginal entrepreneurs while lower exit barriers attract the entrepreneurs most likely to succeed. Overall, we conclude that bankruptcy reforms leading to more lenient bankruptcy laws encourage better – and not just more – entrepreneurs to start firms.

Number of Pages in PDF File: 54

Keywords: entrepreneurship, institutions, Japan

JEL Classification: M13, O53, D21, D78, D92, H32


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Date posted: January 10, 2012 ; Last revised: May 9, 2016

Suggested Citation

Eberhart, Robert and Eesley, Charles E. and Eisenhardt, Kathleen M., Failure Is an Option: Bankruptcy Reform and New Firm Performance (February 26, 2016). Rock Center for Corporate Governance at Stanford University Working Paper No. 111. Available at SSRN: http://ssrn.com/abstract=1982819 or http://dx.doi.org/10.2139/ssrn.1982819

Contact Information

Robert Eberhart (Contact Author)
Santa Clara University - Department of Management ( email )
500 El Camino Real
Santa Clara, CA California 95053
United States
408-554-4574 (Phone)
HOME PAGE: http://www.scu.edu/business/management/faculty/eberhart.cfm
Charles E. Eesley
Stanford University - Management Science & Engineering ( email )
473 Via Ortega
Stanford, CA 94305-9025
United States
(740) 236-4653 (Phone)
HOME PAGE: http://www.stanford.edu/~cee
Kathleen M. Eisenhardt
Stanford University - Management Science & Engineering ( email )
473 Via Ortega
Stanford, CA 94305-9025
United States
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