IDEAS home Printed from https://ideas.repec.org/a/eee/jbvent/v26y2011i5p505-520.html
   My bibliography  Save this article

How do bankruptcy laws affect entrepreneurship development around the world?

Author

Listed:
  • Lee, Seung-Hyun
  • Yamakawa, Yasuhiro
  • Peng, Mike W.
  • Barney, Jay B.

Abstract

How do bankruptcy laws as formal institutions affect entrepreneurship development around the world? Do entrepreneur-friendly bankruptcy laws encourage more entrepreneurship development at a societal level? We posit that if bankrupt entrepreneurs are excessively punished for failure, they may give up potentially high-return but inherently high-risk opportunities to start new businesses. Amassing a cross-country database from 29 countries spanning 19Â years (1990-2008), we find that lenient, entrepreneur-friendly bankruptcy laws are significantly correlated with the level of entrepreneurship development as measured by the rate of new firm entry.

Suggested Citation

  • Lee, Seung-Hyun & Yamakawa, Yasuhiro & Peng, Mike W. & Barney, Jay B., 2011. "How do bankruptcy laws affect entrepreneurship development around the world?," Journal of Business Venturing, Elsevier, vol. 26(5), pages 505-520, September.
    • Handle: RePEc:eee:jbvent:v:26:y:2011:i:5:p:505-520
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0883902610000546
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Lucian Arye Bebchuk, 2002. "Ex Ante Costs of Violating Absolute Priority in Bankruptcy," Journal of Finance, American Finance Association, vol. 57(1), pages 445-460, February.
    2. Chuck C Y Kwok & Solomon Tadesse, 2006. "The MNC as an agent of change for host-country institutions: FDI and corruption," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 37(6), pages 767-785, November.
    3. Arturo Bris & Ivo Welch & Ning Zhu, 2006. "The Costs of Bankruptcy: Chapter 7 Liquidation versus Chapter 11 Reorganization," Journal of Finance, American Finance Association, vol. 61(3), pages 1253-1303, June.
    4. Oriana Bandiera & Gerard Caprio & Patrick Honohan & Fabio Schiantarelli, 2000. "Does Financial Reform Raise or Reduce Saving?," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 239-263, May.
    5. Klapper, Leora & Laeven, Luc & Rajan, Raghuram, 2006. "Entry regulation as a barrier to entrepreneurship," Journal of Financial Economics, Elsevier, vol. 82(3), pages 591-629, December.
    6. J. Caprio & P. Honohan, 2000. "Restoring Banking Stability: Beyond Supervised Capital Requirements," South African Journal of Economics, Economic Society of South Africa, vol. 68(1), pages 5-22, March.
    7. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2002. "The Regulation of Entry," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(1), pages 1-37.
    8. La Porta, Rafael & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," Journal of Finance, American Finance Association, vol. 52(3), pages 1131-1150, July.
    9. Andrei Shleifer & Lawrence H. Summers, 1988. "Breach of Trust in Hostile Takeovers," NBER Chapters, in: Corporate Takeovers: Causes and Consequences, pages 33-68, National Bureau of Economic Research, Inc.
    10. Harry G. Barkema & Oleg Shvyrkov, 2007. "Does top management team diversity promote or hamper foreign expansion?," Strategic Management Journal, Wiley Blackwell, vol. 28(7), pages 663-680, July.
    11. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    12. Zahra, Shaker A., 2007. "Contextualizing theory building in entrepreneurship research," Journal of Business Venturing, Elsevier, vol. 22(3), pages 443-452, May.
    13. Michelle Alexopoulos & Ian Domowitz, 1998. "Personal Liabilities and Bankruptcy Reform: An International Perspective," International Finance, Wiley Blackwell, vol. 1(1), pages 127-159, October.
    14. Kawai, Hiroki & Urata, Shujiro, 2002. "Entry of Small and Medium Enterprises and Economic Dynamism in Japan," Small Business Economics, Springer, vol. 18(1-3), pages 41-51, Feb.- May.
    15. Stijn Claessens & Leora F. Klapper, 2005. "Bankruptcy around the World: Explanations of Its Relative Use," American Law and Economics Review, American Law and Economics Association, vol. 7(1), pages 253-283.
    16. Mark Broadie & Mikhail Chernov & Suresh Sundaresan, 2007. "Optimal Debt and Equity Values in the Presence of Chapter 7 and Chapter 11," Journal of Finance, American Finance Association, vol. 62(3), pages 1341-1377, June.
    17. Fan, Wei & White, Michelle J, 2003. "Personal Bankruptcy and the Level of Entrepreneurial Activity," Journal of Law and Economics, University of Chicago Press, vol. 46(2), pages 543-567, October.
    18. Mooweon Rhee & Pamela R. Haunschild, 2006. "The Liability of Good Reputation: A Study of Product Recalls in the U.S. Automobile Industry," Organization Science, INFORMS, vol. 17(1), pages 101-117, February.
    19. John Armour & Douglas Cumming, 2008. "Bankruptcy Law and Entrepreneurship," American Law and Economics Review, American Law and Economics Association, vol. 10(2), pages 303-350.
    20. Mike W Peng & Denis Y L Wang & Yi Jiang, 2008. "An institution-based view of international business strategy: a focus on emerging economies," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 39(5), pages 920-936, July.
    21. Alan J. Auerbach, 1988. "Corporate Takeovers: Causes and Consequences," NBER Books, National Bureau of Economic Research, Inc, number auer88-1.
    22. Wruck, Karen Hopper, 1990. "Financial distress, reorganization, and organizational efficiency," Journal of Financial Economics, Elsevier, vol. 27(2), pages 419-444, October.
    23. Simeon Djankov & Oliver Hart & Caralee McLiesh & Andrei Shleifer, 2008. "Debt Enforcement around the World," Journal of Political Economy, University of Chicago Press, vol. 116(6), pages 1105-1149, December.
    24. Katharina Pistor, 2000. "Patterns of legal change: shareholder and creditor rights in transition economies," Working Papers 49, European Bank for Reconstruction and Development, Office of the Chief Economist.
    25. Young Choi & Phillip Phan, 2006. "The Influences of Economic and Technology Policy on the Dynamics of New Firm Formation," Small Business Economics, Springer, vol. 26(5), pages 493-503, June.
    26. Bebchuk, Lucian Arye, 2000. "Using options to divide value in corporate bankruptcy," European Economic Review, Elsevier, vol. 44(4-6), pages 829-843, May.
    27. Isabelle Huault & V. Perret & S. Charreire-Petit, 2007. "Management," Post-Print halshs-00337676, HAL.
    28. Jack A. Nickerson & Brian S. Silverman, 2003. "Why aren't all Truck Drivers Owner‐Operators? Asset Ownership and the Employment Relation in Interstate for‐hire Trucking," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 12(1), pages 91-118, March.
    29. Mike Wright & Igor Filatotchev & Robert E. Hoskisson & Mike W. Peng, 2005. "Strategy Research in Emerging Economies: Challenging the Conventional Wisdom," Journal of Management Studies, Wiley Blackwell, vol. 42(1), pages 1-33, January.
    30. Jeremy Berkowitz & Michelle J. White, 2004. "Bankruptcy and Small Firms' Access to Credit," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 69-84, Spring.
    31. Youngjae Lim & Chin Hee Hahn, 2003. "Bankruptcy Policy Reform and Total Factor Productivity Dynamics in Korea," NBER Working Papers 9810, National Bureau of Economic Research, Inc.
    32. Geert Hofstede, 2007. "Asian management in the 21st century," Asia Pacific Journal of Management, Springer, vol. 24(4), pages 411-420, December.
    33. Christian Schade & Donald Siegel, 2008. "International issues in entrepreneurship," Small Business Economics, Springer, vol. 31(1), pages 1-3, June.
    34. Tim R. Holcomb & R. Michael Holmes Jr. & Brian L. Connelly, 2009. "Making the most of what you have: managerial ability as a source of resource value creation," Strategic Management Journal, Wiley Blackwell, vol. 30(5), pages 457-485, May.
    35. Baumol, William J., 1996. "Entrepreneurship: Productive, unproductive, and destructive," Journal of Business Venturing, Elsevier, vol. 11(1), pages 3-22, January.
    36. Kenneth Ayotte, 2007. "Bankruptcy and Entrepreneurship: The Value of a Fresh Start," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 23(1), pages 161-185, April.
    37. Sue Birley, 1986. "The role of new firms: Births, deaths and job generation," Strategic Management Journal, Wiley Blackwell, vol. 7(4), pages 361-376, July.
    38. Wilbur N. Moulton & Howard Thomas, 1993. "Bankruptcy as a deliberate strategy: Theoretical considerations and empirical evidence," Strategic Management Journal, Wiley Blackwell, vol. 14(2), pages 125-135, February.
    39. Catherine Armington & Zoltan J. Acs, 2008. "The Determinants of Regional Variation in New Firm Formation," Chapters, in: Entrepreneurship, Growth and Public Policy, chapter 18, pages 224-243, Edward Elgar Publishing.
    40. Anne Marie Knott & Hart E. Posen, 2005. "Is failure good?," Strategic Management Journal, Wiley Blackwell, vol. 26(7), pages 617-641, July.
    41. Goderis, Benedikt & Ioannidou, Vasso P., 2008. "Do high interest rates defend currencies during speculative attacks New evidence," Journal of International Economics, Elsevier, vol. 74(1), pages 158-169, January.
    42. Nickell, Stephen J, 1996. "Competition and Corporate Performance," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 724-746, August.
    43. Julian R. Franks & Kjell G. Nyborg & Walter N. Torous, 1996. "A Comparison of UK, US and German Insolvency Codes," Financial Management, Financial Management Association, vol. 25(3), Fall.
    44. Hoetker, Glenn & Agarwal, Rajshree, 2005. "Death Hurts, But It Isn't Fatal: The Postexit Diffusion of Knowledge Created by Innovative Companies," Working Papers 05-0100, University of Illinois at Urbana-Champaign, College of Business.
    45. Matthias Kahl, 2002. "Economic Distress, Financial Distress, and Dynamic Liquidation," Journal of Finance, American Finance Association, vol. 57(1), pages 135-168, February.
    46. Gaston, Noel, 1997. "Efficiency wages, managerial discretion, and the fear of bankruptcy," Journal of Economic Behavior & Organization, Elsevier, vol. 33(1), pages 41-59, May.
    47. Kevin M.J. Kaiser, 1996. "European Bankruptcy Laws: Implications for Corporations Facing Financial Distress," Financial Management, Financial Management Association, vol. 25(3), Fall.
    48. LoPucki, Lynn M. & Doherty, Joseph W., 2002. "Why Are Delaware and New York Reorganizations Failing?," Berkeley Olin Program in Law & Economics, Working Paper Series qt81g9f6d8, Berkeley Olin Program in Law & Economics.
    49. Joseph R. Mason, 2005. "A Real Options Approach to Bankruptcy Costs: Evidence from Failed Commercial Banks During the 1990s," The Journal of Business, University of Chicago Press, vol. 78(4), pages 1523-1554, July.
    50. Rick L. Williams, 2000. "A Note on Robust Variance Estimation for Cluster-Correlated Data," Biometrics, The International Biometric Society, vol. 56(2), pages 645-646, June.
    51. repec:bla:intfin:v:1:y:1998:i:1:p:127-59 is not listed on IDEAS
    52. Zoltan Acs & Laszlo Szerb, 2007. "Entrepreneurship, Economic Growth and Public Policy," Small Business Economics, Springer, vol. 28(2), pages 109-122, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Seung-Hyun Lee & Yasuhiro Yamakawa, 2012. "Forgiving Features for Failed Entrepreneurs vs. Cost of Financing inBankruptcies," Management International Review, Springer, vol. 52(1), pages 49-79, February.
    2. Mike W. Peng & Yasuhiro Yamakawa & Seung–Hyun Lee, 2010. "Bankruptcy Laws and Entrepreneur– Friendliness," Entrepreneurship Theory and Practice, , vol. 34(3), pages 517-530, May.
    3. Saul Estrin & Tomasz Mickiewicz & Anna Rebmann, 2017. "Prospect theory and the effects of bankruptcy laws on entrepreneurial aspirations," Small Business Economics, Springer, vol. 48(4), pages 977-997, April.
    4. Alessandro Melcarne & Giovanni B. Ramello, 2020. "Bankruptcy delay and firms’ dynamics," Small Business Economics, Springer, vol. 54(2), pages 405-419, February.
    5. Régis Blazy & Nicolae Stef, 2020. "Bankruptcy procedures in the post-transition economies," European Journal of Law and Economics, Springer, vol. 50(1), pages 7-64, August.
    6. Miguel García-Posada & Juan Mora-Sanguinetti, 2015. "Entrepreneurship and enforcement institutions: disaggregated evidence for Spain," European Journal of Law and Economics, Springer, vol. 40(1), pages 49-74, August.
    7. Beck, T.H.L., 2010. "Legal Institutions and Economic Development," Other publications TiSEM 8aa07b48-ce55-4cf6-8754-7, Tilburg University, School of Economics and Management.
    8. Lee, Seung-Hyun & Peng, Mike W. & Song, Sangcheol, 2013. "Governments, entrepreneurs, and positive externalities: A real options perspective," European Management Journal, Elsevier, vol. 31(4), pages 333-347.
    9. Simeon Djankov & Oliver Hart & Caralee McLiesh & Andrei Shleifer, 2008. "Debt Enforcement around the World," Journal of Political Economy, University of Chicago Press, vol. 116(6), pages 1105-1149, December.
    10. Konstantin A. Kholodilin & Linus Pfeiffer, 2021. "Measuring Unmeasurable: How to Map Laws to Numbers Using Leximetrics," Discussion Papers of DIW Berlin 1933, DIW Berlin, German Institute for Economic Research.
    11. Yasar, Mahmut & Paul, Catherine J. Morrison & Ward, Michael R., 2011. "Property Rights Institutions and Firm Performance: A Cross-Country Analysis," World Development, Elsevier, vol. 39(4), pages 648-661, April.
    12. Régis Blazy & Joël Petey & Laurent Weill, 2018. "Serving the creditors after insolvency filings: from value creation to value distribution," European Journal of Law and Economics, Springer, vol. 45(2), pages 331-375, April.
    13. Fan, Joseph P.H. & Huang, Jun & Zhu, Ning, 2013. "Institutions, ownership structures, and distress resolution in China," Journal of Corporate Finance, Elsevier, vol. 23(C), pages 71-87.
    14. Gaffney, Nolan & Cooper, Danielle & Kedia, Ben & Clampit, Jack, 2014. "Institutional transitions, global mindset, and EMNE internationalization," European Management Journal, Elsevier, vol. 32(3), pages 383-391.
    15. Elsas, Ralf & Krahnen, Jan Pieter, 2003. "Universal Banks and Relationships with Firms," CFS Working Paper Series 2003/20, Center for Financial Studies (CFS).
    16. Andrei Shleifer & Florencio Lopez-de-Silanes & Rafael La Porta, 2008. "The Economic Consequences of Legal Origins," Journal of Economic Literature, American Economic Association, vol. 46(2), pages 285-332, June.
    17. ben Jabeur, Sami & Mefteh-Wali, Salma & Carmona, Pedro, 2021. "The impact of institutional and macroeconomic conditions on aggregate business bankruptcy," Structural Change and Economic Dynamics, Elsevier, vol. 59(C), pages 108-119.
    18. Marianna Succurro, 2012. "Bankruptcy systems and economic performance across countries: some empirical evidence," European Journal of Law and Economics, Springer, vol. 33(1), pages 101-126, February.
    19. Ewelina Mruk & Inmaculada Aguiar-Díaz & Maria Victoria Ruiz-Mallorquí, 2019. "Use of formal insolvency procedure and judicial efficiency in Spain," European Journal of Law and Economics, Springer, vol. 47(3), pages 435-470, June.
    20. Erkko Autio & Kun Fu, 2015. "Economic and political institutions and entry into formal and informal entrepreneurship," Asia Pacific Journal of Management, Springer, vol. 32(1), pages 67-94, March.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jbvent:v:26:y:2011:i:5:p:505-520. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jbusvent .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.