Fresh Start Policies and Small Business Activity: Evidence From a Natural Experiment

95 Pages Posted: 25 Aug 2023

See all articles by Marco Celentani

Marco Celentani

Charles III University of Madrid - Department of Economics

Miguel García-Posada

Banco de España

Fernando Gomez-Pomar

Universitat Pompeu Fabra

Date Written: March 14, 2022

Abstract

There is no consensus in the academic literature on whether personal bankruptcy laws should be creditor-friendly or debtor-friendly in order to promote entrepreneurship and small business activity. This paper contributes to that literature by analyzing the effect of the introduction of a fresh start policy in Spain in 2015 on the performance of micro-firms as a natural experiment, using Spanish non-micro firms and Portuguese firms as control groups. We find that the reform substantially increased both the probability of filing for bankruptcy by Spanish micro-firms in financial distress (arguably to seek discharge of part of the firm owner’s debt) and the probability of these firms exiting the market, as the fresh start policy requires the liquidation of the debtor’s non-exempt assets. In addition, the reform increased investment and turnover in micro-firms but had no effect on their employment. Finally, the reform also promoted the creation of new micro-firms, especially those involved in innovation activities and in sectors with high productivity.

Keywords: personal bankruptcy, fresh start, micro-firms, entrepreneurship

JEL Classification: K35, G33, L25, L26

Suggested Citation

Celentani, Marco and García-Posada, Miguel and Gomez-Pomar, Fernando, Fresh Start Policies and Small Business Activity: Evidence From a Natural Experiment (March 14, 2022). Banco de Espana Working Paper No. 2210, Available at SSRN: https://ssrn.com/abstract=4548018 or http://dx.doi.org/10.2139/ssrn.4548018

Marco Celentani

Charles III University of Madrid - Department of Economics ( email )

Calle Madrid 126
Getafe, 28903
Spain
+34-91-624 9546 (Phone)
+34-91-624 9875 (Fax)

Miguel García-Posada (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Fernando Gomez-Pomar

Universitat Pompeu Fabra ( email )

Ramon Trias Fargas 25-27
08005 Barcelona
Spain
(34-93) 542 16 47 (Phone)
(34-93) 542 17 31 (Fax)

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