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Debtor Protection and Business Dynamism

Author

Listed:
  • Geraldo Cerqueiro
  • María Fabiana Penas
  • Robert Seamans

Abstract

We study the effect of debtor protection on business dynamism. We find that greater debtor protection, in the form of more lenient personal bankruptcy laws, increases firm entry only in sectors requiring low start-up capital. We also find that debtor protection increases firm exit and job destruction rates among young small firms. This negative effect takes 3 years to materialize and is persistent. Finally, we provide evidence consistent with two mechanisms underlying these changes in business dynamism: a reduction in credit supply and entry of lower-quality firms following increases in debtor protection.

Suggested Citation

  • Geraldo Cerqueiro & María Fabiana Penas & Robert Seamans, 2019. "Debtor Protection and Business Dynamism," Journal of Law and Economics, University of Chicago Press, vol. 62(3), pages 521-549.
    • Handle: RePEc:ucp:jlawec:doi:10.1086/704956
    DOI: 10.1086/704956
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    Cited by:

    1. Luca Farè & Marcus Dejardin & Eric Toulemonde, 2024. "Bankruptcy recovery rate and small businesses’ innovation," Applied Economics, Taylor & Francis Journals, vol. 56(32), pages 3870-3903, July.
    2. Rachel Atkins & Lisa Cook & Robert Seamans, 2022. "Discrimination in lending? Evidence from the Paycheck Protection Program," Small Business Economics, Springer, vol. 58(2), pages 843-865, February.
    3. Elena Cefis & Cristina Bettinelli & Alex Coad & Orietta Marsili, 2022. "Understanding firm exit: a systematic literature review," Small Business Economics, Springer, vol. 59(2), pages 423-446, August.
    4. Marco Celentani & Miguel García-Posada & Fernando Gómez Pomar, 2022. "Fresh start policies and small business activity: evidence from a natural experiment," Working Papers 2210, Banco de España.

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