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http://ssrn.com/abstract=1982819
 
 

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Failure is an Option: Failure Barriers and New Firm Performance


Robert Eberhart


Santa Clara University - Department of Management; Stanford University - Management Science & Engineering

Charles E. Eesley


Stanford University

Kathleen M. Eisenhardt


Stanford University - Management Science & Engineering

July 18, 2013

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

Abstract:     
Do bankruptcy law changes in the institutional environment affect the rate of founding by particular types of entrepreneurs and the performance of their ventures? We take advantage of a quasi-natural experiment in Japan where changes to bankruptcy laws reduced the consequences of closing a firm. We define elite entrepreneurs as those from the top ten universities in Japan and older individuals and find that: a) the proportion of firms declaring bankruptcy increases, especially for firms founded by elite entrepreneurs, b) elite entrepreneurs form an increasing proportion of new firm foundings, and c) new firms performance increases as these elite entrepreneurs are more likely to found higher performing firms. While prior research emphasizes the lowering of entry barriers, our work suggests that reducing the “barriers to failure” can stimulate venture formation among elite individuals leading to higher performing firms. Overall, we find that legal reforms that reduce failure barriers encourage “better,” not just “more,” entrepreneurs to found ventures.

Number of Pages in PDF File: 40

Keywords: entrepreneurship, institutions, Japan

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

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Date posted: January 10, 2012 ; Last revised: October 25, 2013

Suggested Citation

Eberhart, Robert and Eesley, Charles E. and Eisenhardt, Kathleen M., Failure is an Option: Failure Barriers and New Firm Performance (July 18, 2013). 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
Stanford University - Management Science & Engineering ( email )
473 Via Ortega
Stanford, CA 94305-9025
United States
Charles E. Eesley
Stanford University ( 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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