Abstract

The large number of new firms that go bankrupt shortly after founding has increased concerns among policy makers about lengthy bankruptcy procedures, social stigma and lack of support for bankrupt entrepreneurs (Wymenga et al., 2014). As a result, policy makers across the world tend to provide honest bankrupt entrepreneurs with a second chance by implementing a fresh start policy in countries’ personal bankruptcy laws. Such a policy increases debtor protection by permitting bankrupt entrepreneurs to discharge their outstanding credit obligations after a certain period of time (Armour and Cumming, 2008). While a growing literature points to the important impact of debtor protection on entrepreneurship and the credit availability to these entrepreneurs (e.g. Armour and Cumming, 2008; Djankov et al., 2007; Shleifer and Vishny, 1997), to date, the effect of a fresh start policy on the credit availability to start-ups is largely unexplored. In this study, we address these issues by investigating how a fresh start policy influences start-ups’ capital structure.

Share

COinS