Premium
DOES BANKRUPTCY LAW AFFECT BUSINESS TURNOVER? EVIDENCE FROM NEW AND EXISTING BUSINESS
Author(s) -
Rohlin Shawn M.,
Ross Amanda
Publication year - 2016
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.12230
Subject(s) - bankruptcy , asset (computer security) , affect (linguistics) , business , small business , state law , state (computer science) , economics , law , finance , market economy , linguistics , philosophy , computer security , algorithm , computer science , political science , welfare
This study examines how differences in state bankruptcy laws, specifically the homestead exemption, affect business turnover by studying both new and existing businesses. We focus on areas just near state boundaries to control for unobserved local attributes to better isolate the effect of more wealth protection. We find that an increase in the homestead exemption attracts new businesses but also has a positive impact on existing businesses, suggesting that asset protection through bankruptcy law encourages successful entrepreneurs to incur the risks. Our results indicate that the personal bankruptcy law is an important policy tool that governments can use to encourage business growth without causing business turnover. ( JEL K30, K36, R11, R1)