Entrepreneurship and Information on Past Failures: A Natural Experiment
54 Pages Posted: 18 Jul 2017 Last revised: 30 Jun 2019
Date Written: June 26, 2019
We analyze how public information on past entrepreneurial failure affects an entrepreneur's ability to borrow for a new venture. We exploit a policy shock from 2013 in France, which eliminated a highly salient public reporting to banks of the list of entrepreneurs involved in past corporate liquidations. We find that the elimination of this flag makes failed entrepreneurs significantly more likely to restart a business. This happens despite the fact that banks can buy the failure information from other public sources at a relatively small cost. Restarters create companies that have a higher probability of default. The effect of the reform is significantly more pronounced for younger entrepreneurs, in line with a simple model where banks rationally use information to update beliefs on entrepreneurs' quality.
Keywords: Entrepreneurship, Access to credit, Bankruptcy
JEL Classification: G33, L26
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