How Does Personal Bankruptcy Law Affect Start-ups?

G.M. Cerqueiro, M.F. Penas

Research output: Working paperDiscussion paperOther research output

Abstract

We analyze the effect of changes in U.S. state personal exemptions on the financing structure and performance of a representative sample of start-ups. An increase in the amount of borrower’s personal wealth protected in bankruptcy reduces the availability of bank credit to all start-ups. Owners of unlimited liability businesses, who benefit from the increase in wealth insurance, offset the reduction in bank credit by investing more money in the firm. We find no such response for start-ups whose entrepreneurs’ personal wealth is already protected by limited liability. Consequently, corporations experience lower growth rates and higher failure rates, while proprietorships performance is not negatively affected.
Original languageEnglish
Place of PublicationTilburg
PublisherTILEC
Volume2011-043
Publication statusPublished - 2011

Publication series

NameTILEC Discussion Paper
Volume2011-043

Fingerprint

Personal bankruptcy
Start-ups
Wealth
Bankruptcy law
Bank credit
Failure rate
Liability
Entrepreneurs
Investing
Financing
Limited liability
U.S. States
Bankruptcy
Owners
Exemption
Insurance

Keywords

  • debtor protection
  • bankruptcy
  • start-ups
  • credit availability
  • agency problems

Cite this

Cerqueiro, G. M., & Penas, M. F. (2011). How Does Personal Bankruptcy Law Affect Start-ups? (TILEC Discussion Paper; Vol. 2011-043). Tilburg: TILEC.
Cerqueiro, G.M. ; Penas, M.F. / How Does Personal Bankruptcy Law Affect Start-ups?. Tilburg : TILEC, 2011. (TILEC Discussion Paper).
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Cerqueiro, GM & Penas, MF 2011 'How Does Personal Bankruptcy Law Affect Start-ups?' TILEC Discussion Paper, vol. 2011-043, TILEC, Tilburg.

How Does Personal Bankruptcy Law Affect Start-ups? / Cerqueiro, G.M.; Penas, M.F.

Tilburg : TILEC, 2011. (TILEC Discussion Paper; Vol. 2011-043).

Research output: Working paperDiscussion paperOther research output

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Cerqueiro GM, Penas MF. How Does Personal Bankruptcy Law Affect Start-ups? Tilburg: TILEC. 2011. (TILEC Discussion Paper).