Entrepreneurship and Information on Past Failures: A Natural Experiment

54 Pages Posted: 18 Jul 2017 Last revised: 30 Jun 2019

See all articles by Christophe Cahn

Christophe Cahn

Banque de France - Direction des Entreprises

Mattia Girotti

Banque de France

Augustin Landier

HEC

Multiple version iconThere are 2 versions of this paper

Date Written: June 26, 2019

Abstract

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

Suggested Citation

Cahn, Christophe and Girotti, Mattia and Landier, Augustin, Entrepreneurship and Information on Past Failures: A Natural Experiment (June 26, 2019). Available at SSRN: https://ssrn.com/abstract=3000829 or http://dx.doi.org/10.2139/ssrn.3000829

Christophe Cahn

Banque de France - Direction des Entreprises ( email )

39 rue Croix des Petits Champs
Paris Cedex 01 75049
France

Mattia Girotti (Contact Author)

Banque de France ( email )

Paris
France

Augustin Landier

HEC ( email )

France
+33630006051 (Phone)

HOME PAGE: http://https://sites.google.com/site/augustinlandier/

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