Bankruptcy Law and Entrepreneurship
University of Cambridge Centre for Business Research Working Paper No. 300
41 Pages Posted: 27 Jul 2005 Last revised: 10 Sep 2008
Date Written: July 18, 2007
Entrepreneurs, catalysts for innovation in the economy, are increasingly the object of policymakers' attention. Recent initiatives both in the UK and at EU level have sought to promote entrepreneurship by reducing the harshness of the consequences of personal bankruptcy law. Whilst there is an intuitive link between the two, relatively little attention has been paid to the question empirically, particularly in the international context. We investigate the link between bankruptcy and entrepreneurship using data on self employment over 16 years (1990-2005) and 15 countries in Europe and North America. We compile new indices reflecting how `forgiving' personal bankruptcy laws are, reflecting the time to discharge. These measures vary over time and across the countries studied. We show that bankruptcy law has a statistically and economically significant effect on self employment rates when controlling for GDP growth, MSCI stock returns, and a variety of other legal and economic factors. The results have clear implications for policymakers.
Keywords: Personal Bankruptcy Law, Entrepreneurship
JEL Classification: K35, M13
Suggested Citation: Suggested Citation