Personal Bankruptcy and the Level of Entrepreneurial Activity

Posted: 24 Nov 2009

See all articles by Wei Fan

Wei Fan

University of Michigan at Ann Arbor - Department of Economics

Michelle J. White

affiliation not provided to SSRN

Date Written: 2002

Abstract

The fact that 20 percent of personal bankruptcyfilings list business debts suggests that personal bankruptcy procedures areimportant for entrepreneurs. Whether individuals are more likely to becomeentrepreneurs if they live in states with higher bankruptcy exemptions warrantsinvestigation. A model of how variations in exemption levels affect incentivesto own small businesses illustrates that higher exemption levels providepartial wealth insurance, which increases the likelihood that risk-averseentrepreneurs will choose self-employment. A study of family-level panel data from two different Survey of Income andProgram Participation (SIPP) panels, each of which contains about 20,000families interviewed at various times between 1993 and 1998, provides empiricalevidence that supports the model: families who are homeowners are about 35percent more likely to own businesses if they live in states with high orunlimited (rather than low) homestead exemptions, while renters are 29 percentmore likely to own businesses if they live in high exemption states. Families'decisions to own non-corporate businesses are more responsive to changes inexemption levels than their decisions to own corporate businesses.(SAA)

Keywords: Risk orientation, Family firms, Management decisions, Bankruptcy, Bankruptcy laws

Suggested Citation

Fan, Wei and White, Michelle J., Personal Bankruptcy and the Level of Entrepreneurial Activity (2002). University of Illinois at Urbana-Champaign's Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship, Available at SSRN: https://ssrn.com/abstract=1510603

Wei Fan (Contact Author)

University of Michigan at Ann Arbor - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States
734-483-7286 (Phone)
734-764-2769 (Fax)

Michelle J. White

affiliation not provided to SSRN

No Address Available

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