Abstract
The paper analyzes the effect of legal changes to creditor rights on new firm creation in 70 countries. Strengthening creditor rights in both bankruptcy and collateral corporate laws on average enhances entrepreneurship. However, the findings suggest a large cross-country variation in the relationship between creditor rights and entrepreneurship. In particular, the positive effect of strengthening creditor rights is greater in countries with more secure property rights, less costly firm registration, and stronger bank market power. The results are robust to alternative specifications and sample definitions, and to omitted variables and endogeneity controls. In terms of policy implications, the results suggest that the regulation of creditor rights for promoting entrepreneurship should consider national institutional, regulatory, and market structure characteristics.
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