Debtor rights, credit supply, and innovation

Geraldo Cerqueiro, Deepak Hegde, Maria Penas, Robert Seamans

Research output: Contribution to journalArticleScientificpeer-review

28 Citations (Scopus)


Firms’ innovative activities can be sensitive to public policies that affect the availability of capital for risky projects. In this paper, we investigate the effects of regional and temporal variation in U.S. personal bankruptcy laws on firms’ innovative activities. We find bankruptcy laws that provide stronger debtor protection decrease the number of patents produced by small firms. Stronger debtor protection also decreases the average quality, and variance in quality, of firms’ patents. We find evidence that the negative effect of stronger debtor protection on experimentation and innovation may be due to the decreased availability of external finance in response to stronger debtor rights — an effect amplified in industries with a high dependence on external finance. Hence, while it is typically assumed that stronger debtor protection encourages innovation by reducing the cost of failure for innovators, we show that it can instead dampen innovative activities by tightening the availability of external finance to innovators.
Original languageEnglish
Pages (from-to)3311-3327
Number of pages72
JournalManagement Science
Issue number10
Early online date11 Aug 2016
Publication statusPublished - Oct 2017


  • Debtor Protection
  • Credit Markets
  • Innovation
  • Patents
  • Personal Bankruptcy Law
  • Small Businesses


Dive into the research topics of 'Debtor rights, credit supply, and innovation'. Together they form a unique fingerprint.

Cite this