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Creditor Rights and Entrepreneurship: Evidence from Fraudulent Transfer Law
Creditor Rights and Entrepreneurship: Evidence from Fraudulent Transfer Law
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.
Page Last Revised - October 8, 2021
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