How does the leniency of personal bankruptcy law affect entrepreneurship in EU countries? – Publication by György Walter, Ferenc Illés and Fanni Tóth
2022-12-01 14:54:47The publication by György Walter, Ferenc Illés and Fanni Tóth was published in the Plos One.
Abstract: Several studies examined how some characteristics of personal bankruptcy laws influenced entrepreneurial developments during the last two decades. Our main objective is to analyze the association between self-employment and the leniency of the personal bankruptcy systems in 24 EU countries. Unlike previous studies, we measure differences and changes in the leniency of the regulations with a composite index that incorporates 35 variables. Based on a cross-country database of self-employment ratios and various control variables spanning the years 2000 to 2019, we apply a panel regression model. We find that the implementation of new regulations and reforms in personal bankruptcy legislation in more lenient directions positively correlates with entrepreneurial developments measured by self-employment rates. This is more significant in the group of countries where the eligibility criteria for entrepreneurs are not constrained. We find a one-year negative time-lag effect and conclude that strong anticipation of the law for a more lenient system can immediately change the risk-reward profile, and thereby influence entrepreneurship before implementing the actual reform. An important policy implication is that a major reform in regulation or the first implementation of conservative legislation has the same order of magnitude of effect on promoting entrepreneurship as other public policy reforms of similar purpose.