sou · H2B344 · 2014-06-23 00:00:00 — Det är betydligt viktigare att den sammantagna tiden för konkurs och skuldsanering är kort och att individen ges möjligheter att försöka igen med ett nytt företag eller projekt. Utredningens förslag att betalningsplanens längd ska vara för företagare i kombination med utredningens förslag till ändrade effektiva förfaranderegler innebär att den sammantagna tiden som dessa personer genomgår ett insolvensförfarande i princip halveras. Förslaget innebär även att vissa företagare som inte har kunnat få skuldsanering nu erbjuds en sådan möjlighet. För dessa personer är förändringen ännu större eftersom de med gällande lagstiftning helt saknar möjlighet att få sina skulder avskrivna efter en konkurs. PRODUCTIVE ENTREPRENEURSHIP AND INSOLVENCY LEGISLATURE: A CROSSCOUNTRY STUDY © 2014 the authors and for Growth Policy Analysis A sizable literature in political economics and law has focused on the importance of a "fresh start" for entrepreneurs who finds themselves in financial insolvency (eg, Hallinan, 1986). Encouraging personal risk taking and entrepreneurship are imperative requirements for modern economic systems since the most productive types of entrepreneurship often involves joint ownership and labor input by the founderentrepreneur(s) (Kihlstrom, & Laffont, 1979; Gennaioli et al., 2013). International authority in the field of insolvency law and political economy, prof. , summarize the state of current academic knowledge as Our research shows that potential entrepreneurs are strongly affected by changes in the risk of bankruptcy (, p. 19–20). As noted in a recent issue of (2010: 68), which addressed public policy attempts to promote entrepreneurship and economic growth in the midst of the global financial crisis: Making it easier to close a business may not sound as inviting as announcing yet another enterprise fund or innovation initiative, but it is more vital to reviving the world's moribund economy. In the short run, enlightened bankruptcy laws reduce unemployment by viable companies alive. In the long run they boost rates of entrepreneurship. The best way to get more people to start businesses is to make it easier to wind them up. (Economist, 2010, p. On the other hand, too lenient insolvency laws imply a risk that creditors will react negatively by raising the costs of interest and/or access to financing of small firms, which may negatively affect small firms access to credit. friendly insolvency legislature implies a balance between not exclusively favour the creditors of small firms (Gratzer & , 1999) and at the same time not encourage excess entry of unproductive entrepreneurs (Camerer & Lovallo, 1999). The overall goals of insolvency legislation are multifold: on the one hand, insolvency rules and legislation is meant to protect asset owners claims to assets that are produced or controlled by firm (e.g. shareholders in the firm, , debt holders, tax authorities). Recent reforms of insolvency rules such as the U.S. Chapter 11 legislation or the Swedish 2010 bankruptcy legislation, often strives to weed out bankrupt firms deemed nonproductive and where reorganization is not likely to result in a profitable firm, but encourage the reorganization and reinitiation of deemed likely to have the chance to become profitable in the nearby future. resources from bankruptcies, be it fixed assets in the firm or the human capital of entrepreneurship and employees are imperative for recouping societal investments (et al., 2007; et al., 2010; , 2001) and for the potential of entrepreneurs to learn from their mistakes (et al., 2014; et al., 2010). Not all bankrupt firms are by necessity declared insolvent. A substantial number of Swedish bankruptcies are initiated by the entrepreneur herself, while other entrepreneurs choose to sell off remaining assets, pay their debts and liquidate their firm when facing insolvency, perhaps to avoid a stigma of insolvency (, Calls for a firm to be declared bankruptcy may also be initiated by other asset claimants such as , distributors, or debt holders. Even if entrepreneurs in a young firm strive to pursue profitability, erratic performance is common: initial high performance can quickly turn into losses or insolvency because young firms generally have few reserves to withstand sudden environmental shifts (, GimenoGascon, & , 1994). Growing firms imply societal spill overs in terms of new products and services, job creation, and tax payments. Small firms that remain unprofitable, however, imply few or no societal spill overs in terms of low earnings for the entrepreneur, limited job creation and tax payments. From a theoretical perspective, thus, policy makers should balance the encouragement of exit of unprofitable firms with encouraging the growth of profitable businesses. Whether insolvency laws and regulations are too lenient or too harsh is however an With the exception of a few studies showing a positive relationship between forgiving bankruptcy procedures and the rate of firm formation (e.g. Armour and Cummings, 2008; et al., 2011), there is a dearth of empirical studies comparing insolvency legislation and productive entrepreneurship across countries. An exception is the recent quasinatural experimental study by and colleagues (2013). Studying a reform in where changes to bankruptcy laws reduced the consequences of closing a firm, they found that the proportion of firms declaring bankruptcy increased following the reform, especially for firms founded by elite entrepreneurs. Perhaps most important: average new firms performance increased as these elite entrepreneurs are more likely to found higher performing firms. In this memo we provide a new comparative study on the association between insolvency regulations and entrepreneurship using recent highquality data on 66 Specifically, we use stateofthe art multilevel modelling to investigate the relationship between four different measures of resolving insolvency from the (20042010) and four different measures of entrepreneurship from the Global Entrepreneurship Monitor (GEM). Our data covers the period from 2004 to 2010. Resolving insolvency data from the started in 2004 and we have access to GEMbased data until 2010. We first conduct countrylevel analyses estimating the relationship between countrylevel measures of resolving insolvency from the and eight different indicators Second, we conduct individuallevel analyses estimating the relationship between the same countrylevel measures of resolving insolvency and individuals likelihood of the four types of entrepreneurial activity. 221 countryyear observations from 66 countries (with dummy variable included) Prevalence rate of (i) opportunitydriven entrepreneurship, (ii) necessity driven entrepreneurship, (iii) innovative entrepreneurship based on new products, and (iv) growthorientated entrepreneurship. Following standard procedures, all outcomes are defined as the percentage of workingage population (1864 years old) who has claimed the business mentioned above in the current year of the GEM survey (i.e., number of certain types of entrepreneurship per 100 workingage population, see e.g. et al., 2003). Independent variables: Resolving insolvency measures from the (20042010) and described in detail by e.g. Djankov et al. (2008). We use four different proxies to measure Resolving insolvency. The data describing resolving insolvency for all 66 countries in our study are described in detailed in Appendix 5. Insolvency Time refers to the average time (in years) to complete a bankruptcy procedure within a given country. We expect that a shorter time for bankruptcy procedure will be associated with a higher rate of bankruptcy filings as well as higher rates of entrepreneurship. Insolvency Cost (% of estate) represents the cost of the bankruptcy proceedings, and includes court fees and government levies; fees of insolvency administrators, auctioneers, assessors and lawyers; and all other fees and costs. As mentioned in the parenthesis, it is recorded as a percentage of the value of the debtors estate. Recovery rate calculates how many cents on the dollar claimants (creditors, tax authorities, and employees) recover from an insolvent firm. In other papers this variable is called Fresh start (et al., 2011). Alternative measure of Resolving Insolvency: Distance to frontier (DTF) shows the distance of each economy to the frontier, which is the highest performance observed of each of the indicators across all economies measured in Doing Business since the inclusion of the indicator (Hölzl & Friesenbichler, 2010). An economys distance to frontier is reflected on a scale from 0 to 100, where 0 represents the lowest performance and 100 represents the frontier. (E.g., a score of 75 in DB 2013 means an economy was 25 percentage points away from the frontier constructed from the best performances across all economies and across time. A score of 80 in DB 2014 would indicate the economy is improving.) country dummy variable took value 1 if yes. GDP per capita adjusted for purchasing power parity. GDP per capita squared Interest rate is the lending interest rate adjusted for inflation as measured by the GDP deflator. Distance to Frontierstarting a business Random effect panel regression (GLS) with standard errors clustered on countries. All 66 countries are included for each of the years 20042010. Descriptive data and correlations pooled for all years in the study are provided in Appendix 6. Overall, we find relatively strong by somewhat mixed results on the insolvency legislation – entrepreneurship association in countries. In each of the four country level estimates obtained we find that the four entrepreneurship measures (opportunity driven, necessitydriven, innovative, and growthorientated entrepreneurship) are affected by at least two, but often two or three, of the four insolvency legislation measures. For Opportunitydriven Entrepreneurship, we find somewhat differing effects of the four of the insolvency legislation measures. First, we find that insolvency time is negatively associated with the rates of Opportunitydriven Entrepreneurship among developing nations, but not among countries. Second and conversely, we found that insolvency cost (% of estate) is negatively associated with the rates of Opportunitydriven Entrepreneurship among countries, but not among developing nations. These effects are described in detailed in Appendix 1. For Necessitydriven Entrepreneurship, we find as expected much weaker effects of the four the insolvency legislation measures, compared to Opportunity driven Entrepreneurship. Insolvency cost (% of estate) is negatively associated with countrylevel rate rates of Necessitydriven Entrepreneurship among countries, but not among developing countries. The remaining three insolvency legislation measures do not exhibit any noticeable effect. These effects are described in detailed in Appendix 2. Also for Innovative Entrepreneurship based on new products, we find rather weak effects of the four the insolvency legislation measures. The only significant measure is insolvency time (year) which negatively associated with countrylevel rates of Innovative Entrepreneurship based on new products among developing nations, but not among countries. These effects are described in detailed in Appendix 3. For GrowthOrientated Entrepreneurship, we two apparent effects: First, insolvency recovery rate (cents on the dollar) is negatively associated with countrylevel rates of established growthorientated entrepreneurs. Second, our measure Distance to Frontier is negatively associated with countrylevel rates of established growth orientated entrepreneurs. These effects are described in detailed in Appendix 4. The Flash Eurobarometer Entrepreneurship Survey (European Commission, 2004) suggests that the risk of personal bankruptcy is one of the most important reasons for individuals not to engage in entrepreneurship. However, the perceived risk of bankruptcy differs significantly across nations, with as an important outlier where the perceived risk of bankruptcy is highest among all the surveyed nations (, 2007). In this memo we presented a comparative study on the association between insolvency regulations and entrepreneurship in 66 countries. We first conducted a traditional crosscountry analysis of the relationship between four different measures of resolving insolvency from the (20042010) and four different measures of entrepreneurship rates from the Global Entrepreneurship Monitor (GEM). Our analyses show that reducing the barriers to failure may indeed stimulate opportunitydriven, highgrowth, and innovative entrepreneurship. However, the effects of our four insolvency legislation measures differ across estimates obtained. All the three measures insolvency time, insolvency cost (% of estate) and recovery rate are negatively related to opportunity driven, highgrowth, and innovative entrepreneurship, but their relative salience differ for these three proxies of highpotential entrepreneurship. Insolvency cost is also negatively associated with necessitydriven entrepreneurship, generally considered a less important measure of entrepreneurship in countries. Our alternative measure of Resolving Insolvency – the countrys level of distance to the frontier of entrepreneurship as measured in GEM data, is related only to growth oriented entrepreneurship. These findings suggest that insolvency legislature is indeed related to the level of entrepreneurship in a country, especially opportunitydriven, highgrowth, and innovative entrepreneurship. Our countrylevel analyses suggest that reducing the barriers to failure can stimulate opportunitydriven, highgrowth, and innovative entrepreneurship. These findings supports and extends the quasinatural experimental study by and colleagues (2013) in by suggesting that more forgiving insolvency rules and regulations do in fact encourage better not just more entrepreneurship. Overall, the analyses in this memo provide food for thought for authorities to consider balanced insolvency laws and regulations that take the societal costs of entrepreneurial failure into account. Given the costs and benefits of alternative changes in rules and regulations related to entrepreneurship, considering more moderate insolvency rules and regulations do in fact encourage better not just more entrepreneurship. Validation Estimations: Individual-level Analyses Estimates on the country level may masks what goes on at the individual level, where effects of countrylevel institutions (such as insolvency legislature) can be averaged out or biased. In other words, using countrylevel predictors to predict countrylevel aggregates of individual behaviors masks the effect of individuallevel attributes on behaviors, called the individualistic fallacy in the literature (Seligson, 2002: 273). Individuals can behave entrepreneurially, but it is far less obvious what the notion of an entrepreneurial country means (Acs, Autio, & Szerb, 2012). statistical design helps avoid this fallacy by allowing the simultaneous consideration of countrylevel and individuallevel factors in entrepreneurial behaviors. To validate the countrylevel results obtained and further scrutinize the relationship between insolvency legislature and entrepreneurship we therefore use stateofthe art multilevel modelling to investigate the relationship between four different measures of resolving insolvency from the and the four comparable individual level measures of entrepreneurship from GEM. We have 321,475 workingage populations from 30 countries in this analysis. Opportunitydriven entrepreneurs are entrepreneurs taking advantage of a business opportunity Necessitydriven entrepreneurs are entrepreneurs having no better choices for work other than the current business. Innovative entrepreneurs new product are entrepreneurs introducing new product (product is new to all or some ). Growthorientated entrepreneurs are entrepreneurs expecting high job (20+) growth in 5 five years Independent variables: Same four resolving insolvency measures from the (20042010) as defined in the individuallevel study. of an individual was measured in years. Gender took the value 1 for females and 0 for males. Education took the values 1, 2, 3, 4, and 5 for individuals received no education, primary education, secondary degree, postsecondary, and graduate education respectively. Household income took values of 1, 2, and 3 for lowest, middle, and highest income tiers in the population respectively. Fear of failure indicated whether fear of failure would prevent the individual from setting up a business (1=yes). Familiarity ties with entrepreneurs indicated whether the individual knew other persons who had started a business in the past 2 years (1=yes). Entrepreneurial knowledge and skills indicated the individual perceived the required skills and knowledge to start a new business (1=yes). Multilevel logit regressions for opportunitydriven and necessitydriven entrepreneurship (with nascent entrepreneurship as the baseline model). This provides an estimate of the relative likelihood of engaging in either opportunitydriven or necessitydriven entrepreneurship, given specific levels of insolvency procedures in a given country. Heckman two stage regressions with probit model at the first stage and multilevel logit models at the second stage for innovative and growthoriented entrepreneurship. This provides an estimate of the relative likelihood of engaging in innovativedriven or growthoriented entrepreneurship, respectively, given specific levels of insolvency procedures in a given country. The individuallevel estimates supports those obtained in the countrylevel regressions, but adds further detailed by focusing the multilevel effects whereby legal regulations in countries affects individual entrepreneurs likelihood to engage in any type of entrepreneurship. In each of the four individuallevel estimates obtained we find that the four entrepreneurship measures (opportunitydriven, necessitydriven, innovative, and growthorientated entrepreneurship) are affected by at least tw of the four insolvency legislation measures. For Opportunitydriven Entrepreneurship, we find overall negative effects of two of insolvency legislation measures. First, insolvency time is negatively related to individuals likelihood of engaging in Opportunitydriven Entrepreneurship. Specifically, holding all other variables at their mean, the marginal effect of a oneunit increase in insolvency cost decrease the likelihood that an individual will engaging in Opportunitydriven Entrepreneurship by 0,(in average terms, 0,). We also find that insolvency cost (% of estate) is strongly negatively associated with the likelihood of engaging in Opportunitydriven Entrepreneurship. Specifically, holding all other variables at their mean, the marginal effect of a oneunit increase in insolvency cost decrease the likelihood that an individual will engaging in Opportunitydriven Entrepreneurship by 0,(in average terms, 1,). Given that the majority of variance in individuals likelihood of engaging in Entrepreneurship resides at the individual and not the country level of analyses (and thus cannot readily be affected by policy makers, at least not in the short and intermediate horizon) this is in fact quite a substantial effect. Our proxy measure Distance to Frontier is however positively associated with individuals likelihood of engaging in Opportunitydriven Entrepreneurship. These effects are described in detailed in Appendix 7. For Necessitydriven Entrepreneurship, we find similar but weaker effects of the three significant insolvency legislation measures, compared to Insolvency time is negatively related to individuals likelihood of engaging in Opportunitydriven Entrepreneurship. Specifically, holding all other variables at their mean, the marginal effect of a oneunit increase in insolvency cost decrease the likelihood that an individual will engaging in Opportunitydriven Entrepreneurship by 0,. We also find that insolvency cost (% of estate) is strongly negatively associated with the likelihood of engaging in Opportunitydriven Entrepreneurship. Specifically, holding all other variables at their mean, the marginal effect of a oneunit increase in insolvency cost decrease the likelihood that an individual will engaging in Opportunitydriven Entrepreneurship by 0,. Also here our proxy measure Distance to Frontier is positively associated with individuals likelihood of engaging in These effects are described in detailed in Appendix 8. For Innovative Entrepreneurship based on new products, we find a markedly stronger negative effect of insolvency time (year) for individuals likelihood of engaging in Specifically, holding all other variables at their mean, the marginal effect of a oneunit increase in insolvency cost decrease the likelihood that an individual will engaging in Innovative Entrepreneurship by 3,, a substantial effect. However, the variable insolvency cost (% of estate) is not statistically significant in its association with the likelihood of engaging in Innovative Entrepreneurship, affirming the patterns on the country level. Also here our proxy measure Distance to Frontier is positively associated with individuals likelihood of engaging in Opportunitydriven Entrepreneurship. These effects are described in detailed in Appendix 9. For GrowthOrientated Entrepreneurship, we find two somewhat differing effects compared to our first 3 types of entrepreneurship, which mirrors the results obtained on the country level: First, insolvency time is positively associated with individual level rates of established growthorientated entrepreneurs. Holding all other variables at their mean, the marginal effect of a oneunit increase in insolvency cost increase the likelihood that an individual will engaging in growthoriented Entrepreneurship by 0,. We also find that insolvency cost is not significantly associated with the likelihood of engaging in growthoriented Entrepreneurship. However, our proxy measure Distance to Frontier is here negatively associated with individuals likelihood of engaging in Growthoriented Entrepreneurship, in that a oneunit increase in Distance to Frontier decrease the likelihood that an individual will engaging in growthoriented Entrepreneurship by 1,. These effects are described in detailed in Appendix 10. Armour, J., & Cumming, D. (2008). Bankruptcy and Entrepreneurship. American and , 10(2), 303350. Camerer, C., & Lovallo, D. (1999). Overconfidence and Excess Entry: An Experimental Approach. [Article]. , 89(1), 306318. C., GimenoGascon, F. J., & , C. (1994). Initial human and financial capital as predictors of new venture performance. , 9, 371395. Cumming, D. & J. MacIntosh, (2003). A CrossCountry Comparison of Full and Capital Exits. , 27(3): 511548. 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