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

See all articles by John Armour

John Armour

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

Douglas J. Cumming

Florida Atlantic University; Birmingham Business School; European Corporate Governance Institute (ECGI)

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 )

St Cross Building
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Oxford, OX1 3UL
United Kingdom
+44 1865 281616 (Phone)

HOME PAGE: http://www.law.ox.ac.uk/people/john-armour

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
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1000 Brussels
Belgium

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

Douglas J. Cumming

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://sites.google.com/view/douglascumming/bio?authuser=0

Birmingham Business School ( email )

Edgbaston Park Road
Birmingham, B15 2TY
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://https://ecgi.global/users/douglas-cumming

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