Life after Death: A Field Experiment with Small Businesses on Information Frictions, Stigma, and Bankruptcy

45 Pages Posted: 13 Feb 2023 Last revised: 12 Jul 2023

See all articles by Shai Bernstein

Shai Bernstein

Harvard University - Business School (HBS)

Emanuele Colonnelli

University of Chicago - Booth School of Business

Mitchell Hoffman

University of Toronto - Rotman School of Management; National Bureau of Economic Research (NBER)

Benjamin Charles Iverson

Brigham Young University

Multiple version iconThere are 2 versions of this paper

Date Written: February 2023

Abstract

In an RCT with US small businesses, we document that a large share of firms are not well-informed about bankruptcy. Many assume that bankruptcy necessarily entails the death of a business and do not know about Chapter 11, where debts are renegotiated so that the business can continue operating. Firms also exhibit bankruptcy-related stigma, believing that bankruptcy is embarrassing, a sign of failure, and a negative signal to employees and customers. Short educational videos that address information or stigma increase knowledge and decrease stigma, both immediately and durably over 4 months. Videos increase reported interest in using Chapter 11 bankruptcy and increase intended debt and investment. However, we do not observe long-term real effects. A survey of bankruptcy attorneys and judges points to entrepreneurs’ overconfidence and, to a lesser extent, excessive perceived legal fees as first-order frictions explaining the limited real impact of treatments that only address information and stigma.

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Suggested Citation

Bernstein, Shai and Colonnelli, Emanuele and Hoffman, Mitchell and Iverson, Benjamin Charles, Life after Death: A Field Experiment with Small Businesses on Information Frictions, Stigma, and Bankruptcy (February 2023). NBER Working Paper No. w30933, Available at SSRN: https://ssrn.com/abstract=4356216 or http://dx.doi.org/10.2139/ssrn.4356216

Shai Bernstein (Contact Author)

Harvard University - Business School (HBS) ( email )

Boston, MA 02163
United States

Emanuele Colonnelli

University of Chicago - Booth School of Business ( email )

HOME PAGE: http://emanuelecolonnelli.com

Mitchell Hoffman

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S1S4
Canada
6503802822 (Phone)
M5S2J6 (Fax)

HOME PAGE: http://https://sites.google.com/site/mhoffman2

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Benjamin Charles Iverson

Brigham Young University ( email )

United States

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