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| Author: | Berkowitz, J. White, M.J. |
| Title: | Bankruptcy and small firms' access to credit |
| Journal: | RAND Journal of Economics
2004 : SPRING, VOL. 35:1, p. 69-84 |
| Index terms: | Bankruptcy Credit Small and medium-sized enterprises (SMEs) |
| Language: | eng |
| Abstract: | It is investigated how personal bankcruptcy law affects small companies' access to credit. When a company is unincorporated, its debts are personal liabilities of the company's owner, so that lending to the company is legally equivalent to lending to its owner. If the company fails, the owner has an incentive to file for personal bankruptcy, since the company's debts will be discharged. The higher the exemption level, the greater the incentive to file for bankruptcy. The model is tested and it is found that if small companies are located in states with unlimited rather than low homestead exemptions, they are more likely to be denied, and when loans are made, they are smaller and interest rates are higher. |
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