Fresh start policies and small business activity: evidence from a natural experiment

Marco Celentani, Miguel Garcia-Posada and Fernando Gómez Pomar
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Marco Celentani: Universidad Carlos III
Fernando Gómez Pomar: Universitat Pompeu Fabra

No 2210, Working Papers from Banco de España

Abstract: There is no consensus in the academic literature on whether personal bankruptcy laws should be creditor-friendly or debtor-friendly in order to promote entrepreneurship and small business activity. This paper contributes to that literature by analyzing the effect of the introduction of a fresh start policy in Spain in 2015 on the performance of micro-firms as a natural experiment, using Spanish non-micro firms and Portuguese firms as control groups. We find that the reform substantially increased both the probability of filing for bankruptcy by Spanish micro-firms in financial distress (arguably to seek discharge of part of the firm owner’s debt) and the probability of these firms exiting the market, as the fresh start policy requires the liquidation of the debtor’s non-exempt assets. In addition, the reform increased investment and turnover in micro-firms but had no effect on their employment. Finally, the reform also promoted the creation of new micro-firms, especially those involved in innovation activities and in sectors with high productivity.

Keywords: personal bankruptcy; fresh start; micro-firms; entrepreneurship (search for similar items in EconPapers)
JEL-codes: G33 K35 L25 L26 (search for similar items in EconPapers)
Pages: 95 pages
Date: 2022-03
New Economics Papers: this item is included in nep-cfn, nep-cse, nep-eec, nep-ent, nep-eur, nep-ino and nep-sbm
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:2210

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