Entrepreneurship and Information on Past Failures: A Natural Experiment
49 Pages Posted: 18 Jul 2017 Last revised: 23 Dec 2017
Date Written: December 22, 2017
We analyze how public information on past entrepreneurial failure affects an entrepreneur's ability to borrow. We exploit a policy shock from 2013 in France, which eliminated a highly salient public reporting to banks of managers involved in non-fraudulent corporate liquidations. We find that the elimination of this flagging system makes failed entrepreneurs significantly more likely to restart a business or to borrow from a surviving business, despite the fact that bankers can find the failure information from other public sources for a small cost. The effect is more pronounced for industries where failure is a stronger signal about entrepreneurial ability. Restarters create companies that have a higher probability of default.
Keywords: Entrepreneurship, Access to credit, Bankruptcy
JEL Classification: G33, L26
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