Failure IS an Option: The Effect of Bankruptcy on New Venture Performance

About the seminar

This talk will describe new research showing that bankruptcy law reforms affect the rate of founding by well-educated and older entrepreneurs and the performance of their ventures.

The seminar will show the results of a natural experiment in Japan where changes to bankruptcy laws reduced the consequences of closing a company to find that:

1. likelihood of bankruptcy increases, especially for firms founded by elite entrepreneurs
2. elite entrepreneurs form an increasing proportion of the new firms
3. new firm performance increases as these elite entrepreneurs are more likely to found higher performing firms.

While prior research emphasizes the lowering of entry barriers, our work suggests that reducing the "barriers to failure" can stimulate venture formation among elite individuals leading to higher performing firms. Overall, we find that legal reforms that reduce failure barriers encourage "better", not just 'more", entrepreneurs to found ventures.

This talk is part of the seminar series hosted by the Stanford Project on Japanese Entrepreneurship (STAJE) at Stanford Program on Regions of Innovation and Entrepreneruship, Stanford Graduate School of Business, and sponsored by The Miner Foundation.