Bankruptcy Law and Entrepreneurship

46 Pages Posted: 31 Dec 2008 Last revised: 31 Oct 2012

See all articles by John Armour

John Armour

University of Oxford - Faculty of Law; European Corporate Governance Institute (ECGI)

Douglas J. Cumming

Florida Atlantic University; Birmingham Business School; European Corporate Governance Institute (ECGI)

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Date Written: 2008

Abstract

Recent initiatives in a number of countries have sought to promote entrepreneurship through relaxing the legal consequences of personal bankruptcy. Whilst there is an intuitive link, relatively little attention has been paid to the question empirically, particularly in the international context. We investigate the relationship between bankruptcy laws and entrepreneurship using data on self-employment over 16 years (1990-2005) and fifteen countries in Europe and North America. We compile new indices reflecting how “forgiving” personal bankruptcy laws are. These measures vary over time and across the countries studied. We show that bankruptcy law has a statistically and economically significant effect on self-employment rates when controlling for GDP growth, MSCI stock returns, and a variety of other legal and economic factors.

Keywords: K35, M13

Suggested Citation

Armour, John and Cumming, Douglas J., Bankruptcy Law and Entrepreneurship (2008). American Law and Economics Review, Vol. 10, Issue 2, pp. 303-350, 2008, Available at SSRN: https://ssrn.com/abstract=1318088 or http://dx.doi.org/ahn008

John Armour (Contact Author)

University of Oxford - Faculty of Law ( email )

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European Corporate Governance Institute (ECGI) ( email )

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Belgium

HOME PAGE: http://www.ecgi.org

Douglas J. Cumming

Florida Atlantic University ( email )

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Boca Raton, FL 33431
United States

HOME PAGE: http://sites.google.com/view/douglascumming/bio?authuser=0

Birmingham Business School ( email )

Edgbaston Park Road
Birmingham, B15 2TY
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://https://ecgi.global/users/douglas-cumming

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