Question

1. What are the pros and cons for entrepreneur friendly bankruptcy laws?
2. Why can bankruptcy laws become exit barriers for an entrepreneurial firm? Entry barriers?
3. Having studied this case, how would you respond to a friend's comment: "Recent news about the boom in bankruptcies is so depressing"?

Corporate bankruptcies* have climbed to new heights in the Great Recession. Firms ranging from huge corporations (such as General Motors) to tiny entrepreneurial outfits have gone bankrupt left and right around the world. Since bankruptcies do not sound too good or inspiring, is there anything that we-the government, financial institutions, consumers, or the society at large-can do to prevent widespread bankruptcies? Efforts to rescue failing firms from bankruptcies stem from an "anti-failure" bias that is widely shared among entrepreneurs, scholars, journalists, and officials. Although a majority of entrepreneurial firms fail, this "anti-failure" bias leads to strong interest in entrepreneurial success (remember how many times Google and Facebook were written up by the press?), and to scant attention devoted to the vast majority of entrepreneurial firms that end up in failure and bankruptcy. However, one perspective suggests that bankruptcies, which are undoubtedly painful to individual entrepreneurs and employees, may be good for the society. Consequently, bankruptcy laws need to be reformed to become more entrepreneur-friendly by making it easier for entrepreneurs to declare bankruptcy and to move on. Thus, financial, human, and physical resources stuck with failed firms can be redeployed in a socially optimal way.



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  • CreatedApril 25, 2014
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