The state‐level exemption changes in Chapter 7 protection and entrepreneurial activity in the United States

Pankaj C. Patel and Srikant Devaraj

Managerial and Decision Economics, 2021, vol. 42, issue 5, 1089-1104

Abstract: To predict the effect of bankruptcy laws on entrepreneurial activity, we exploit the 2005 and 2011 staggered state‐level increases in exemptions for the amount of personal wealth protected under Chapter 7 bankruptcy in the United States. We focus on three types of outcomes—firm establishments, entrepreneurship quality, and individual self‐employment. Using state‐, cross‐border‐county‐neighbor‐pair‐, and individual‐level data, the additional state‐level exemptions do not affect any of the three types of entrepreneurial activities, and in cases where the association is statistically significant, the effect sizes are negligible. Our results are inconsistent with theories that predict that asset protection in bankruptcy improves entrepreneurial activity.

Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:wly:mgtdec:v:42:y:2021:i:5:p:1089-1104

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