Creditor Rights and Entrepreneurship: Evidence from Fraudulent Transfer Law

63 Pages Posted: 12 Jul 2016 Last revised: 28 Sep 2017

See all articles by Nuri Ersahin

Nuri Ersahin

Eli Broad College of Business - Department of Finance

Rustom M. Irani

University of Illinois at Urbana-Champaign - Department of Finance; Centre for Economic Policy Research (CEPR)

Katherine Waldock

Georgetown University McDonough School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: September 27, 2017

Abstract

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

Ersahin, Nuri and Irani, Rustom M. and Waldock, Katherine, Creditor Rights and Entrepreneurship: Evidence from Fraudulent Transfer Law (September 27, 2017). Available at SSRN: https://ssrn.com/abstract=2807420 or http://dx.doi.org/10.2139/ssrn.2807420

Nuri Ersahin

Eli Broad College of Business - Department of Finance ( email )

645 N Shaw Lane
East Lansing, MI 48824
United States
8478686532 (Phone)

HOME PAGE: http://sites.google.com/site/nuriersahin/

Rustom M. Irani (Contact Author)

University of Illinois at Urbana-Champaign - Department of Finance ( email )

College of Business
1206 South Sixth Street
Champaign, IL 61820
United States

HOME PAGE: http://business.illinois.edu/rirani/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Katherine Waldock

Georgetown University McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States

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