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Entrepreneurship and information on past failures: A natural experiment

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  • Cahn, Christophe
  • Girotti, Mattia
  • Landier, Augustin

Abstract

We analyze how public information on past entrepreneurial failure affects entrepreneurs’ ability to borrow and start new ventures. We exploit a policy shock from 2013 in France, which eliminated a widely used means of public reporting to banks of the identity of entrepreneurs involved in past corporate liquidations. We find that the elimination of this flag increases failed entrepreneurs’ probability of starting a new business by at least 19%. Restarters create companies that have a higher probability of default. The effect of the reform is significantly more pronounced for younger entrepreneurs, in line with banks rationally using information to update beliefs on entrepreneurs’ ability.

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  • Cahn, Christophe & Girotti, Mattia & Landier, Augustin, 2021. "Entrepreneurship and information on past failures: A natural experiment," Journal of Financial Economics, Elsevier, vol. 141(1), pages 102-121.
    • Handle: RePEc:eee:jfinec:v:141:y:2021:i:1:p:102-121
    DOI: 10.1016/j.jfineco.2020.06.021
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    Cited by:

    1. Hellmann, Thomas & Montag, Alexander & Tåg, Joacim, 2024. "Tolerating Losses for Growth: J-Curves in Venture Capital Investing," Working Paper Series 1500, Research Institute of Industrial Economics.
    2. Aleksandra Baros & Ettore Croci & Mattia Girotti & Federica Salvadè, 2023. "Information Salience and Credit Supply: Evidence from Payment Defaults on Trade Bills," Working papers 918, Banque de France.
    3. Chloé Zapha & Banque de France, 2023. "Access to Credit after Emerging from Corporate Bankruptcy," Working Papers halshs-03957890, HAL.

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    More about this item

    Keywords

    Entrepreneurship; Firm Creation; Access to Credit; Bankruptcy; Banks;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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