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"BANKRUPTCY LAW"
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Bankruptcy law and angel investors around the world
We conjecture that angel investment in entrepreneurial firms depends on two types of bankruptcy laws around the world. Corporate bankruptcy laws impact investor terms and incentives to finance risky entrepreneurs, particularly given reforms that brought about a time-efficient, simplified, and clear process in recent years in some countries. Personal bankruptcy laws impact entrepreneurial motivations to engage in risk-taking and entrepreneurship and thus affect the demand for angel financing. In this paper, we examine 35,752 angel investments from 72 countries from 2000 to 2020 and compare the relative importance of corporate and personal bankruptcy laws for angel investment activities. The data indicate that corporate bankruptcy law reforms and personal bankruptcy law reforms both positively influence angel investment activities. The data further suggest that countries that reformed both laws had the most pronounced improvements in angel activities. These findings are robust using a quasi-experimental approach of the difference-in-differences method, clustering standard errors, and excluding U.S. observations, among other strategies.
Journal Article
Bankruptcy and the U.S. Supreme Court
\"In this illuminating work, Ronald J. Mann offers readers a comprehensive study of bankruptcy cases in the Supreme Court of the United States. He provides detailed case studies based on the Justices' private papers on the most closely divided cases, statistical analysis of variation among the Justices in their votes for and against effective bankruptcy relief, and new information about the appearance in opinions of citations taken from party and amici briefs. By focusing on cases that have neither a clear answer under the statute nor important policy constraints, the book unveils the decision-making process of the Justices themselves - what they do when they are left to their own devices. It should be read by anyone interested not only in the jurisprudence of bankruptcy, but also in the inner workings of the Supreme Court\"-- Provided by publisher.
Book
Debtor Rights, Credit Supply, and Innovation
Firms’ innovative activities can be sensitive to public policies that affect the availability of capital. In this paper, we investigate the effects of regional and temporal variation in U.S. personal bankruptcy laws on firms’ innovative activities. We find that 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 financing in response to stronger debtor rights, an effect amplified in industries with a high dependence on external financing. 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 financing to innovative firms.
This paper was accepted by David Hsu, entrepreneurship and innovation
.
Journal Article
How Does Personal Bankruptcy Law Affect Startups?
We exploit state-level changes in the amount of personal wealth individuals can protect under Chapter 7 to analyze the effect of debtor protection on the financing structure and performance of a representative panel of U.S. startups. The effect of increasing debtor protection depends on the entrepreneur's level of wealth. Firms owned by mid-wealth entrepreneurs whose assets become fully protected suffer a reduction in credit availability, employment, operating efficiency, and survival rates. We find no such negative effects for low-wealth and high-wealth owners. Our results are consistent with theories that predict that asset protection in bankruptcy leads to a redistribution of credit.
Journal Article
Failure Is an Option: Institutional Change, Entrepreneurial Risk, and New Firm Growth
Does an institutional change that lowers failure barriers improve new firm growth? We take advantage of a quasi-natural experiment in Japan that drastically reduced the stringency of bankruptcy regulations to examine this question. Using longitudinal data over a 10-year period, we find that bankruptcy reform increases the rates of bankruptcy and founding—and, more importantly, the likelihood of high-growth ventures—by disproportionately encouraging elite individuals (i.e., those with superior human and social capital) to start firms. In turn, these firms are more likely than others to achieve high growth. Broadly put, we contribute to research at the nexus of institutional theory and entrepreneurship by emphasizing the connectedness of barriers to failure, venture growth, and elite entrepreneurs. We also highlight how institutional change that eases bankruptcy change can foster a regenerative cycle of failure, founding, and growth by attracting more capable entrepreneurs. Overall, we conclude that lowering barriers to failure via lenient bankruptcy laws encourages
more capable
—and not just
more
—entrepreneurs to start firms.
The online appendix is available at
https://doi.org/10.1287/orsc.2017.1110
.
Journal Article
The Costs of Bankruptcy: Chapter 7 Liquidation versus Chapter 11 Reorganization
Our paper explores a comprehensive sample of small and large corporate bankruptcies in Arizona and New York from 1995 to 2001. Bankruptcy costs are very heterogeneous and sensitive to the measurement method used. We find that Chapter 7 liquidations appear to be no faster or cheaper (in terms of direct expense) than Chapter 11 reorganizations. However, Chapter 11 seems to preserve assets better, thereby allowing creditors to recover relatively more. Our paper also provides a large number of further empirical regularities.
Journal Article