Bankruptcy Regulation and Self-Employment Entry: The Moderating Roles of Income Share, Parenthood, and Hybrid Entrepreneurship

Abstract

We investigate how individual factors moderate the impact of bankruptcy exemption levels—that is, the amount of wealth individuals can keep in case of bankruptcy—on entry into self-employment. Conceptually, we combine Prospect Theory’s axiom of diminishing sensitivity with insights from research on entrepreneurial failure. We hypothesize that individuals who face higher financial, social, or psychological costs because of bankruptcy will be less sensitive to higher exemption levels than will those who face lower costs across these dimensions. Our empirical results, which are based on a quasi-natural experiment in the United States, support our theoretical predictions.

Trading wage jobs for dreams: the interplay between entry modes into self-employment and the duration of subsequent self-employment stints

“…Previous studies on staged entry into self-employment have primarily aimed to establish a foundational understanding of this phenomenon (e.g., Folta et al. , 2010; Block and Landgraf, 2016; Ferreira, 2020; Schulz et al. , 2021; Viljamaa and Varamäki, 2014; Viljamaa et al.…”

“…2. Theoretical insights 2.1 Review of the literature on staged entry into self-employment Previous studies on staged entry into self-employment have primarily aimed to establish a foundational understanding of this phenomenon (e.g., Folta et al, 2010;Block and Landgraf, 2016;Ferreira, 2020;Schulz et al, 2021;Viljamaa and Varam€ aki, 2014;Viljamaa et al, 2017). Research suggests that individuals adopting staged entry are typically not financially constrained (Folta et al, 2010;Petrova, 2010) but tend to be risk-averse with high opportunity costs (Folta et al, 2010).…”

“…, 2008), and the potential risk of social and labor market repercussions in case of failure (Mahieu et al. , 2022; Schulz et al. , 2021).…”

“…Most novice business owners typically begin their entrepreneurial careers while still maintaining wage employment [1] (Folta et al, 2010;G€ anser-Stickler et al, 2022). This occurs because moving from wage employment to self-employment involves a high level of uncertainty (Folta et al, 2010;G€ anser-Stickler et al, 2022), lifestyle changes, irreversible commitments (Choi et al, 2008), and the potential risk of social and labor market repercussions in case of failure (Mahieu et al, 2022;Schulz et al, 2021). However, as they progress in their entrepreneurial journey, wage employees often move toward selfemployment (Isaksen and Kolvereid, 2005), dedicating resources and building resilience against barriers to self-employment (Raffiee and Feng, 2014).…”

Bouncing back from failure: Digital technology capability, entrepreneurial alertness, and reentry intention

“…The experience and tolerance of failure, a common occurrence in entrepreneurship, can greatly vary across diverse social and cultural contexts (Cardon et al, 2011), potentially influencing entrepreneurs' reentry intentions. Furthermore, factors such as variations in national culture, specifically long-term orientation (Lumpkin et al, 2010), entrepreneurship policies (Liu et al, 2019), and bankruptcy systems (Schulz et al, 2021) across different countries can impact an entrepreneur's motivation to reenter in different countries. As such, we suggest future studies to increase their sample size and scope and consider transnational comparative research to validate our findings.…”