Do bankruptcy laws matter for entrepreneurship? A Synthetic Control Method analysis of a bankruptcy reform in Finland

Abstract

The design of a bankruptcy regime can influence the risk perception of entrepreneurs, impacting their growth ambitions as well as their very decision whether to become entrepreneurs. The relationship between bankruptcy legislation and entrepreneurship, therefore, should be of interest to policymakers and entrepreneurs alike. In this paper, we make an attempt to determine the effect of an entrepreneur-friendly bankruptcy reform in Finland, in 2004, on the level of entrepreneurial activity in the country. Running a Synthetic Control Method analysis, we find zero effect: the reform had no significant effect on entrepreneurship. We conclude the paper by offering some explanations for the non-finding and discussing its potential implications for policy.