Bankruptcy Laws and Entrepreneurial Activity

Stringent bankruptcy laws are generally understood to increase the costs of failure and thus not conducive for entrepreneurship. However, the relationship between bankruptcy laws and entrepreneurial activity may be more nuanced than implied by previous work. In particular, the cultural context within which bankruptcy occurs, and the nature of the environment facing entrepreneurs could each impact the relationship between bankruptcy laws and the level of entrepreneurial activity. In this paper, theory is developed exploring these relationships and hypotheses are tested regarding the differences in bankruptcy laws and levels of entrepreneurial activity within and across different country and cultural contexts.