Personal Bankruptcy Law and Entrepreneurship

We study the effect of debtor protection on firm entry and exit dynamics. We find that more lenient personal bankruptcy laws lead to higher firm entry, especially in sectors with low entry barriers. We also find that debtor protection increases firm exit rates and that this effect is independent of firm age. Our results overall indicate that the wealth insurance provided by personal bankruptcy exemptions induce individuals to embrace entrepreneurship and that this in turn fosters competition in a Schumpeterian sense.