Bankruptcy law and entrepreneurship: The evidence.
Research on bankruptcy law and entrepreneurship finds a pattern: where the worst case is smaller, more people start businesses. However, the studies compare places or people who already filed. So treat the findings as a pattern, not a promise about you.
What the cross-place studies found.
In 2003, Wei Fan and Michelle White compared US states. Their work on bankruptcy exemptions and business ownership found homeowners in high-exemption states were about 35 per cent more likely to own a business. Then, in 2008, John Armour and Douglas Cumming studied fifteen countries across sixteen years. Forgiving bankruptcy laws startups data went with more self-employment, even after growth and stock returns.
Bankruptcy law and entrepreneurship for people who file.
Will Dobbie and Jae Song used about 500,000 filings in a 2015 American Economic Review study. Because judges were assigned roughly at random, they could compare similar people. Chapter 13 protection raised annual earnings by 5,562 dollars and cut five-year death risk by 1.2 percentage points. Foreclosures fell by 19.1 percentage points, mainly because refused filers did worse.
The caveats you should keep.
Places differ in countless ways besides their laws. Also, Dobbie and Song studied filers, not founders deciding to start. Berkowitz and White showed kind laws can tighten credit. Therefore, don't start a business because of a study. Instead, notice that societies choose the worst case, so you can look it up.
Read bankruptcy law and entrepreneurship research carefully.
Note whether a study compares places, filers or founders before trusting its conclusion.
Return to your own official sentence instead of relying on a study average.
Questions about bankruptcy law and entrepreneurship.
Does bankruptcy law and entrepreneurship research prove kind laws create founders?
No, it shows a pattern. Places differ in many ways besides their laws.
What is a bankruptcy exemption?
It decides how much property, including a home, you keep if you go bankrupt.
Why were the Dobbie and Song results striking?
Protection was linked to higher earnings and fewer deaths and foreclosures, mainly because refused people did worse.
Read the whole chapter.
This lesson covers one section of chapter 5, “The worst case is written in a law you have never read”. The book goes further, with the full evidence, the stories and every exercise.
Lessons in this chapter.
- 01 Can you go to jail for debt: What the law says.
- 02 What bankruptcy takes from you: Costs that remain.
- 03 How to look up bankruptcy law: One honest sentence.
- 04 How long does bankruptcy last: Five legal answers.
- 05 Bankruptcy law and entrepreneurship: The evidence.
- 06 Charles Dickens debtors prison: Then and now.
- 07 No personal bankruptcy in my country: What to do.
- 08 Fear of losing everything: Draw a legal border.