Creditor Rights and Entrepreneurship: Evidence from Fraudulent Transfer Law
63 Pages Posted: 12 Jul 2016 Last revised: 28 Sep 2017
Date Written: September 27, 2017
We examine entrepreneurship following the adoption of modern-day fraudulent transfer laws in the United States. These laws remove the burden of proof from creditors attempting to claw back funds that were transferred out of failing businesses. They are particularly important for entrepreneurs whose personal assets are often commingled with those of the firm. Using establishment-level data from the U.S. Census Bureau, we document declines in startup entry, churning among entrants, and closures of existing ventures after the passage of these laws. Thus, strengthening creditor rights can impede entrepreneurial activity and the process of reallocating capital from failing to new businesses.
Keywords: Creditor rights; unsecured creditors; bankruptcy; entrepreneurship; capital reallocation; law and finance
JEL Classification: G21, G33, K22, L26, M13
Suggested Citation: Suggested Citation