Bankruptcy Law and Entrepreneurship

ECGI - Law Working Paper No. 105/2008

American Law and Economics Review, Forthcoming

University of Cambridge Centre for Business Research Working Paper No. 300

41 Pages Posted: 27 Jul 2005 Last revised: 10 Sep 2008

John Armour

University of Oxford - Faculty of Law; University of Oxford - Said Business School; European Corporate Governance Institute (ECGI)

Douglas J. Cumming

York University - Schulich School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: July 18, 2007

Abstract

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

Armour, John and Cumming, Douglas J., Bankruptcy Law and Entrepreneurship (July 18, 2007). ECGI - Law Working Paper No. 105/2008; American Law and Economics Review, Forthcoming; University of Cambridge Centre for Business Research Working Paper No. 300. Available at SSRN: https://ssrn.com/abstract=762144

John Armour (Contact Author)

University of Oxford - Faculty of Law ( email )

Oriel College
Oxford, OX1 4EW
United Kingdom
+44 1865 286544 (Phone)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Douglas J. Cumming

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

HOME PAGE: http://booksite.elsevier.com/9780124095373/

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