Abstract
The literature review indicates that bankruptcy law may play an important role in and be one of the factors influencing the development of entrepreneurship, innovation, and thus economic growth, among other things. In previous studies, the analysis of the impact of bankruptcy law on individual variables has been conducted independently. Our aim was to conduct a holistic analysis, taking several factors into account simultaneously. Therefore, a descriptive model was proposed, based on which the following research hypothesis was formulated: In countries characterised by an effective legal system and at the same time debtor-friendly bankruptcy law, the level of risk acceptance among entrepreneurs is higher, which is reflected in higher levels of entrepreneurship and innovation. Based on the selected variables, a cross-sectional analysis was conducted using linear models estimated on the basis of the least-squares method. Additionally, to strengthen the conclusions drawn, the models were assessed in such a way enabling the analysis of causality as defined by Granger based on the two-step process. The results obtained allowed us to confirm the research hypothesis: in countries characterised by an efficient legal system and at the same time debtor-friendly bankruptcy law, the level of risk acceptance among entrepreneurs is higher, which is reflected in higher levels of entrepreneurship and innovation. The research results are particularly important from the point of view of legislators who are responsible for drafting amendments to bankruptcy law. Including certain debtor-friendly provisions may, in the long run, lead to increased entrepreneurship and innovation, and thus economic development.
Highlights
Economic development depends on innovation and entrepreneurship (Hodgson, 2019)
We proposed a descriptive model and put forward the hypothesis according to which: in countries characterised by an effective legal system and at the same time debtor-friendly bankruptcy law, the level of risk acceptance among entrepreneurs is higher, which translates into higher levels of entrepreneurship and innovation
The step was to propose the bankruptcy law severity/friendliness index (BLSI) BIS index, consisting of only three factors, namely 1) sanctions for failure to file for bankruptcy in the required period or for the debtor’s lack of cooperation with the court; 2) regulations regarding the release from debts after the end of bankruptcy or restructuring proceedings; and 3) the maximum time allowed for filing for bankruptcy from the moment of the premise
Summary
Economic development depends on innovation and entrepreneurship (Hodgson, 2019). Innovation is crucial for national economies (Cieślik et al, 2016; Kraftova & Kraft, 2018; Sell, 2020; Tidd, 2006), and for overcoming the contemporary challenges of fighting COVID-19 (Khan et al, 2021) and stagnation (Estrada et al, 2021). Our research conducted for this paper is part of the rich theoretical and empirical body of new institutional economics. It concerns formal institutions, i.e. bankruptcy and restructuring law, which regulates the treatment of debtors, whether insolvent or threatened with insolvency. The output of the new institutional economics argues that the existing system of incentives or "rewards" or "punishments" in a given society and economy depends to a decisive extent on the quality of formal and informal institutions prevailing at a given time and place (Furubotn & Richter, 2005; Hodgson, 2019; North, 1990; Williamson, 1985)
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