How Does Personal Bankruptcy Law Affect Start-Ups?

The Review of Financial Studies, Forthcoming

74 Pages Posted: 3 Oct 2011 Last revised: 9 Aug 2017

See all articles by Geraldo Cerqueiro

Geraldo Cerqueiro

Catolica-Lisbon SBE

María Fabiana Penas

Universidad Torcuato Di Tella

Date Written: July 31, 2016


We exploit state-level changes in the amount of personal wealth individuals can protect under Chapter 7 to analyze the effect of debtor protection on the financing structure and performance of a representative panel of U.S start-ups. The effect of increasing debtor protection depends on the entrepreneur’s level of wealth. Firms owned by mid-wealth entrepreneurs whose assets become fully protected suffer a reduction in credit availability, employment, operating efficiency, and survival rates. We find no such negative effects for low-wealth and high-wealth owners. Our results are consistent with theories that predict that asset protection in bankruptcy leads to a redistribution of credit.

Keywords: Debtor Protection, Personal Bankruptcy Law, Start-ups, Bank Financing

JEL Classification: G32, G33, K35, M13

Suggested Citation

Cerqueiro, Geraldo and Penas, María Fabiana, How Does Personal Bankruptcy Law Affect Start-Ups? (July 31, 2016). The Review of Financial Studies, Forthcoming, Available at SSRN: or

Geraldo Cerqueiro

Catolica-Lisbon SBE ( email )

Palma de Cima
Lisbon, 1649-023

María Fabiana Penas (Contact Author)

Universidad Torcuato Di Tella ( email )

Saenz Valiente 1010
C1428BIJ Buenos Aires

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