نظریه چشم انداز و تاثیر قوانین ورشکستگی بر آرمان های کارآفرینی Prospect theory and the effects of bankruptcy laws on entrepreneurial aspirations

1 Introduction “Holland, the most unpolite country in the world, uses debtors with mildness and malefactors with rigour; England, on the other hand, shows mercy to murderers and robbers, but of poor debtors impossibilities are demanded.” Samuel Byrom, Manchester Times 22 October 1862 The importance of formal institutions in shaping incentives and behaviour is now widely accepted. In particular, it has been recognised that the institutional environment is a crucial factor affecting entrepreneurship (e.g. Baumol 1990; Busenitz et al. 2000; Levie et al. 2014). Previous researchers have stressed the role of both ‘higher order’ institutions (e.g. constitutional protection of property rights) and of government regulations (e.g. Djankov et al. 2002; Klapper et al. 2006; van Stel et al. 2007; McMullen et al. 2008; Bowen and De Clercq 2008; Sobel 2008; Levie and Autio 2011; Troilo 2011; Aidis et al. 2012; Estrin et al. 2013, 2016). We posit that bankruptcy procedures are a feature of a nation’s institutional environment at the regulatory level and have special significance for entrepreneurship (Dally 1994; McGrath 1999; Lee et al. 2007). Legal arrangements for bankruptcy are critical for entrepreneurship as they form ‘the rules of the end game’ (Lee et al. 2011, p. 519); that is the mechanisms to deal with business failure. Entrepreneurship is risky with low survival rates (Audretsch 1991; Mata and Portugal 1994; Geroski 1995; Gimeno et al. 1997). Although firm closure does not necessarily mean that the business has failed, business failure is a common outcome of entrepreneurship (Headd 2003; Wennberg et al. 2010) and also one about which potential entrepreneurs are especially concerned when making entry decisions (Dew et al. 2009). In previous literature, researchers theorise that countries where bankruptcy laws are more debtor friendly, i.e. are more forgiving towards debtors in bankruptcy proceedings, are likely to have more entrepreneurs (Lee et al. 2007, 2011; Armour and Cumming 2008; Peng et al. 2010). This is because entrepreneurship theory emphasises the role of entrepreneurs in creating value by taking risks in innovating, investing and launching new ventures (e.g. Foss and Klein 2012). Debtor-friendly regimes are seen to reduce the downside risks to failure and thus make entering entrepreneurship more attractive (Lee et al. 2007, 2011; Armour and Cumming 2008; Peng et al. 2010). However, the overall effect on entrepreneurship is ambiguous because debtor-friendly bankruptcy regimes take rights away from creditors, unlike more creditor-friendly bankruptcy law that encourages the provision of finance and may thereby relax financing constraints for entrepreneurs (Shleifer and Vishny 1997; Djankov et al. 2007). Indeed, Lee et al. (2011) and Lee and Yamakawa (2012) find that only some elements of debtor-friendly corporate bankruptcy law are positively linked to new firm entry rates. Yet they do not offer an explanation as to why certain elements of bankruptcy law do encourage entrepreneurship while others do not. This is our opening research question