Serial Entrepreneurs and Small Business Bankruptcies

68 Pages Posted: 3 Feb 2005

See all articles by Douglas G. Baird

Douglas G. Baird

University of Chicago Law School

Edward R. Morrison

Columbia Law School

Date Written: January 4, 2005

Abstract

This empirical study suggests that, far from ensuring assets are put to their best use, Chapter 11 encourages small-business entrepreneurs to remain too long with failed businesses before trying to start (or work for) new ones. Small entrepreneurs open and close a number of businesses over the course of their careers as they search for the business (or employer) that offers the best match with their skills. Chapter 11 delays this matching process and, over this dimension, differs little from rent control and other government policies that encourage socially wasteful lock-in of scarce resources. These costs may not be large, as bankruptcy judges are aware of and guard against them. At the same time, however, few benefits offset these costs. The typical Chapter 11 is a small business that has few, if any, specialized assets. It is organized around the owner-operator's human capital and can be (and usually is) reassembled by the owner at low cost. Other than delay, the outcome of a Chapter 11 case - reorganization or liquidation - has little bearing on a small entrepreneur's career.

Keywords: Small Business Bankruptcy, Chapter 11, Entrepreneurship, Asset Specificity, Job Search

JEL Classification: G33, G30, J23, J60, K20, K30, M13

Suggested Citation

Baird, Douglas G. and Morrison, Edward R., Serial Entrepreneurs and Small Business Bankruptcies (January 4, 2005). U Chicago Law & Economics, Olin Working Paper No. 236; Columbia Law and Economics Working Paper No. 265. Available at SSRN: https://ssrn.com/abstract=660301 or http://dx.doi.org/10.2139/ssrn.660301

Douglas G. Baird

University of Chicago Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States
773-702-9571 (Phone)
773-702-0730 (Fax)

Edward R. Morrison (Contact Author)

Columbia Law School ( email )

435 West 116th Street
New York, NY 10025
United States

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