Entrepreneur-friendly bankruptcy laws encourage new businesses to take more risks and broaden their plans, the researchers say. This, in turn, increases the number of firms with high growth potential, but also increases the number of potential failures. The ultimate outcome is worth the effort, the authors say. “Failure, although painful for individual entrepreneurs, may be good — for the economy,” they conclude.
The less risk involved in filing for bankruptcy, the more new firms are founded. Because bankruptcy laws vary widely around the world, especially as they relate to the cost, timing, and level of debt relief, entrepreneurs should closely study the rules in any potential new market.