DOES BANKRUPTCY LAW AFFECT BUSINESS TURNOVER? EVIDENCE FROM NEW AND EXISTING BUSINESS

Shawn M. Rohlin and Amanda Ross ()

Economic Inquiry, 2016, vol. 54, issue 1, 361-374

Abstract: type="main" xml:id="ecin12230-abs-0001"> This study examines how differences in state bankruptcy laws, specifically the homestead exemption, affect business turnover by studying both new and existing businesses. We focus on areas just near state boundaries to control for unobserved local attributes to better isolate the effect of more wealth protection. We find that an increase in the homestead exemption attracts new businesses but also has a positive impact on existing businesses, suggesting that asset protection through bankruptcy law encourages successful entrepreneurs to incur the risks. Our results indicate that the personal bankruptcy law is an important policy tool that governments can use to encourage business growth without causing business turnover. (JEL K30, K36, R11, R1)

Date: 2016
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