Personal bankcuptcy law, wealth and entrepreneurship
Fossen, Frank M. ;  ;  Universität <Berlin, Freie Universität> / Fachbereich Wirtschaftswissenschaft

Main titlePersonal bankcuptcy law, wealth and entrepreneurship
Subtitletheory and evidence from the introduction of a „fresh start“
AuthorFossen, Frank M.
InstitutionUniversität <Berlin, Freie Universität> / Fachbereich Wirtschaftswissenschaft
No. of Pages41 S.
Series ; 2011,8 : Economics
KeywordsPersonal bankruptcy law; insolvency; entrepreneurship; fresh start
Classification (DDC)332 Financial economics
AbstractA personal bankruptcy law that allows for a “fresh start” after bankruptcy reduces the
individual risk involved in entrepreneurial activity. On the other hand, as risk shifts to
creditors who recover less of their credit after a debtor’s bankruptcy, lenders may charge
higher interest rates or ration credit supply, which can hamper entrepreneurship. Both aspects of a more forgiving personal bankruptcy law are less relevant for wealthy potential entrepreneurs who still risk losing their wealth, but tend not to face higher interest rates because they provide collateral. This paper illustrates these effects in a model and tests the hypotheses derived by exploiting the introduction of a “fresh start” policy in Germany in 1999 as a natural experiment, based on representative household panel data. The results indicate that the insurance effect of a more forgiving personal bankruptcy law exceeds the interest effect and on balance encourages less wealthy individuals to enter into entrepreneurship.
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FU DepartmentDepartment Business and Economics
Other affiliation(s)Volkswirtschaftslehre Schwerpunkt Finanzwissenschaft
Year of publication2011
Type of documentBook
Terms of use/Rights Nutzungsbedingungen
Created at2011-05-05 : 10:57:45
Last changed2015-07-15 : 09:07:16
Static URLhttp://edocs.fu-berlin.de/docs/receive/FUDOCS_document_000000010325