Creditor Rights and Entrepreneurship: Evidence from Fraudulent Transfer Law*
January 2016
Working Paper Number:
CES-16-31
Abstract
We examine entrepreneurial activity following the adoption of fraudulent transfer laws in the U.S. These laws strengthen creditor rights by removing the burden of proof from creditors attempting to claw back funds that were transferred out of failing businesses. These laws are particularly important for entrepreneurs whose personal assets are often commingled with those of the venture. Using establishment-level data from the U.S. Census Bureau, we find significant declines in start-up entry, churning among new entrants, and closures of existing ventures after the passage of these laws. Our
findings suggest that strengthening creditor rights can, in some circumstances, impede entrepreneurial activity and slow down the process of creative destruction.
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:
venture,
entrepreneurial,
proprietorship,
entrepreneurship,
entrepreneur,
proprietor,
bank,
borrowing,
lending,
lender,
bankruptcy,
borrower,
loan,
debt,
liquidation,
bankrupt,
debtor,
credit,
banking,
creditor
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Characteristics of Business Owners,
Stern School of Business,
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Chicago Census Research Data Center,
New York University,
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Wholesale Trade,
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Limited Liability Corporations,
Limited Liability Company
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