Bankruptcy of the Small Firm


This presentation focuses on the legal context, conceptual framework, and important empirical findings in small business bankruptcy. The discussion will focus on both the ex-ante effect of the bankruptcy institution--i.e., how it may affect innovation and entrepreneurship; and the ex post resolution of small business cases.

Lecturer: Katherine Waldock (Columbia Law School)

Date: January 18th, 2021

Slides (ppt)

Reading list

Acharya, V. V., Sundaram, R. K., & John, K. (2011). Cross-country variations in capital structures: The role of bankruptcy codes. Journal of Financial Intermediation, 20(1), 25-54.

Agarwal, S., Chomsisengphet, S., Liu, C., & Mielnicki, L. (2005). Impact of state exemption laws on small business bankruptcy decision. Southern Economic Journal, 620-635.

Armour, J., & Cumming, D. (2008). Bankruptcy law and entrepreneurship. American Law and Economics Review, 10(2), 303-350.

Baird, D. G., & Morrison, E. R. (2005). Serial entrepreneurs and small business bankruptcies. Colum. L. Rev., 105, 2310.

Berkowitz, J., & White, M. J. (2004). Bankruptcy and small firms' access to credit. RAND Journal of Economics, 35(1), 69-84.

Bernstein, S., Colonnelli, E., Giroud, X., & Iverson, B. (2019). Bankruptcy spillovers. Journal of Financial Economics, 133(3), 608-633.

Bernstein, S., Colonnelli, E., & Iverson, B. (2019). Asset allocation in bankruptcy. The Journal of Finance, 74(1), 5-53.

Berger, A. N., Cerqueiro, G., & Penas, M. F. (2011). Does debtor protection really protect debtors? Evidence from the small business credit market. Journal of Banking & Finance, 35(7), 1843-1857.

Bris, A., Welch, I., & Zhu, N. (2006). The costs of bankruptcy: Chapter 7 Liquidation versus Chapter 11 Reorganization. Journal of Finance, 61(3), 1253-1303.

Campbell, S. V. (1997). An investigation of the direct costs of bankruptcy reorganization for closely held firms. Journal of small business management, 35(3), 21.

Cerqueiro, G., Hegde, D., Penas, M. F., & Seamans, R. C. (2017). Debtor rights, credit supply, and innovation. Management Science, 63(10), 3311-3327.

Cerqueiro, G., & Penas, M. F. (2017). How does personal bankruptcy law affect startups?. The Review of Financial Studies, 30(7), 2523-2554.

Carter, R., & Auken, H. V. (2006). Small firm bankruptcy. Journal of Small Business Management, 44(4), 493-512.

Dávila, E. (2020). Using elasticities to derive optimal bankruptcy exemptions. The Review of Economic Studies, 87(2), 870-913.

Dawson, A. B. (2016). Better than bankruptcy. Rutgers UL Rev., 69, 137.

Ersahin, N. (2020). Creditor rights, technology adoption, and productivity: Plant-level evidence. The Review of Financial Studies, 33(12), 5784-5820.

Ersahin, N., Irani, R. M., & Waldock, K. (2020). Can Strong Creditors Inhibit Entrepreneurial Activity? Forthcoming, The Review of Financial Studies.

Fossen, F. M. (2014). Personal Bankruptcy Law, Wealth, and Entrepreneurship—Evidence from the Introduction of a “Fresh Start” Policy. American law and economics review, 16(1), 269-312.

Franks, J., & Sussman, O. (2005). Financial distress and bank restructuring of small to medium size UK companies. Review of Finance, 9(1), 65-96.

Hall, B. H., & Lerner, J. (2010). The financing of R&D and innovation. In Handbook of the Economics of Innovation (Vol. 1, pp. 609-639). North-Holland.

Hochberg, Y. V., Serrano, C. J., & Ziedonis, R. H. (2018). Patent collateral, investor commitment, and the market for venture lending. Journal of Financial Economics, 130(1), 74-94.

Ibrahim, D. M. (2010). Debt as venture capital. U. Ill. L. Rev., 1169.

Landon, C. (2013). Making Assignments for the Benefit of Creditors as Easy as ABC. Fordham Urb. LJ, 41, 1451.

Ma, S., Tong, J. T., & Wang, W. (2020). Bankrupt Innovative Firms. Working Paper.

Mann, W. (2018). Creditor rights and innovation: Evidence from patent collateral. Journal of Financial Economics, 130(1), 25-47.

Morrison, E. R. (2007). Bankruptcy decision making: an empirical study of continuation bias in small-business bankruptcies. The Journal of Law and Economics, 50(2), 381-419.

Morrison, E. R. (2009). Bargaining around bankruptcy: small business workouts and state law. The Journal of Legal Studies, 38(2), 255-307.

Morrison, E. R. & Small, T. (2010). Status Report on the Small Business Reorganization Legislation. National Bankruptcy Conference Report.

Paik, Y. (2013). The bankruptcy reform act of 2005 and entrepreneurial activity. Journal of Economics & Management Strategy, 22(2), 259-280.

Ravid, S. A., & Sundgren, S. (1998). The comparative efficiency of small-firm bankruptcies: A study of the US and Finnish bankruptcy codes. Financial Management, 28-40.

Schoenherr, D., & Starmans, J. (2017). When Should Bankruptcy Law Be Creditor-or Debtor-Friendly. Working Paper.

Sullivan, T. A., Warren, E., & Westbrook, J. (1998). Financial difficulties of small businesses and reasons for their failure. Washington, DC: US Small Business Administration, Office of Advocacy (NTIS No. PB99-131955).

Tut, D. (2019). Creditor Rights, Debt Capacity and Securities Issuance: Evidence from Anti-Recharacterization Laws. Working Paper.

Wang, J., Yang, J., Iverson, B. C., & Kluender, R. (2020). Bankruptcy and the COVID-19 Crisis. Working Paper.

White, M. J. (2016). Small business bankruptcy. Annual Review of Financial Economics, 8, 317-336.