The link between bankruptcy law and entrepreneurship

Abstract

Entrepreneurship and innovation are often characterized as two of the most vital contributors to long term prosperity in the world today. As a result we have seen increased interest in this topic both from researchers and managers of government policy. This thesis try to uncover how society can better facilitate entrepreneurship through the legal regulation of bankruptcy. The analysis is based on a cross-country comparison of indicators measuring the strictness of the legal regime and to what extent this affect start-up rates across countries. The data set collected for this thesis enable investigation on this relationship for thirteen counties in the OECD, in the time period from 1995 to 2007. The hypothesis being that if bankrupt entrepreneurs are excessively punished for failure, they may let high-risk but potentially high-return business opportunities pass by. Based on the data material at hand this thesis finds no conclusive results to support the hypothesis. Key variables suddenly shift direction and are often not statistically significant. It is clear that numerous factors play important roles when making a productive environment for entrepreneurs and many intricate interactions are difficult to map. However, the empirical evidence of this thesis provide unconvincing proof related to the effects of bankruptcy law on entrepreneurship.