Creditor Rights and Entrepreneurship: Evidence from Fraudulent Transfer Law*

Nuri Ersahin, Rustom M. Irani and Katherine Waldock

Working Papers from U.S. Census Bureau, Center for Economic Studies

Abstract: We examine entrepreneurial activity following the adoption of fraudulent transfer laws in the U.S. These laws strengthen creditor rights by removing the burden of proof from creditors attempting to claw back funds that were transferred out of failing businesses. These laws are particularly important for entrepreneurs whose personal assets are often commingled with those of the venture. Using establishment-level data from the U.S. Census Bureau, we find significant declines in start-up entry, churning among new entrants, and closures of existing ventures after the passage of these laws. Our findings suggest that strengthening creditor rights can, in some circumstances, impede entrepreneurial activity and slow down the process of creative destruction.

Keywords: Creditor Rights; Bankruptcy; Entrepreneurship; Creative Destruction; Law and Finance Ersahin (search for similar items in EconPapers)
JEL-codes: G21 G33 K22 L26 M13 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2016-01
New Economics Papers: this item is included in nep-cfn, nep-ent, nep-law and nep-sbm
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https://www2.census.gov/ces/wp/2016/CES-WP-16-31.pdf First version, 2016 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:cen:wpaper:16-31

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