Business Creation, Incorporation, and the Role of Personal Bankruptcy Protection: Evidence from the BAPCPA

51 Pages Posted: 16 Oct 2019 Last revised: 20 Oct 2019

See all articles by Rafael P. Ribas

Rafael P. Ribas

University of Amsterdam - Finance Group

Date Written: September 30, 2019

Abstract

This paper investigates how business creation, earnings, and survival are related to incorporation and personal bankruptcy codes. In theory, individual debtor protection might either affect entrepreneurship or just prevent the incorporation of household firms. To examine this issue, I exploit the bankruptcy reform of 2005 as an exogenous reduction in the protection granted by homestead exemptions. Generous exemptions are found to encourage low-skilled entrepreneurs to sustain unincorporated firms. However, these exemptions also encourage high-skilled entrepreneurs to undertake profitable ventures. The evidence is consistent with new entrepreneurs often relying on unincorporated forms as the stepping-stone to a successful business.

Keywords: Bankruptcy law, Debtor protection, Entrepreneurial earnings, Incorporation, Small business dynamics

JEL Classification: D14, G38, G51, J24, K35, M13

Suggested Citation

Ribas, Rafael Perez, Business Creation, Incorporation, and the Role of Personal Bankruptcy Protection: Evidence from the BAPCPA (September 30, 2019). Available at SSRN: https://ssrn.com/abstract=3461785 or http://dx.doi.org/10.2139/ssrn.3461785

Rafael Perez Ribas (Contact Author)

University of Amsterdam - Finance Group ( email )

Plantage Muidergracht 12
Room M 3.06
Amsterdam, 1018 TV
Netherlands

HOME PAGE: http://https://sites.google.com/site/r4ribas/

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