Personal Bankruptcy, Asset Risk, and Entrepreneurship: Evidence from Tenancy-by-the-Entirety Laws

Jeffrey Traczynski

Journal of Law and Economics, 2019, vol. 62, issue 1, 151 - 179

Abstract: Personal bankruptcy law affects entrepreneurs' decision-making and small-business credit markets. I show that personal asset protections affect small-business operations and funding sources using tenancy-by-the-entirety (TBE) laws, a novel source of variation in demand for loans and in bankruptcy exemptions. Tenancy-by-the-entirety laws are associated with firms having fewer business assets and less labor input from firms' owners, which reflects possible moral hazard or credit constraints restricting firms' asset accumulation. This effect arises through changes in firms' funding sources necessary to obtain TBE protections. Unlike bankruptcy exemptions, I find no evidence that TBE laws are associated with higher rates of entrepreneurship.

Date: 2019
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