How Does Personal Bankruptcy Law Affect Startups?

Geraldo Cerqueiro and María Penas

The Review of Financial Studies, 2017, vol. 30, issue 7, 2523-2554

Abstract: We exploit state-level changes in the amount of personal wealth individuals can protect under Chapter 7 to analyze the effect of debtor protection on the financing structure and performance of a representative panel of U.S. startups. The effect of increasing debtor protection depends on the entrepreneur’s level of wealth. Firms owned by mid-wealth entrepreneurs whose assets become fully protected suffer a reduction in credit availability, employment, operating efficiency, and survival rates. We find no such negative effects for low-wealth and high-wealth owners. Our results are consistent with theories that predict that asset protection in bankruptcy leads to a redistribution of credit.Received November 11, 2014; editorial decision August 6, 2016 by Editor Philip Strahan.

JEL-codes: G32 G33 K35 M13 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (17)

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Related works:
Working Paper: How Does Personal Bankruptcy Law Affect Start-ups? (2011)
Working Paper: How Does Personal Bankruptcy Law Affect Start-ups? (2011)
Working Paper: How Does Personal Bankruptcy Law Affect Start-ups? (2011)
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