Personal Bankruptcy Laws and Corporate Policies

Abstract

In this article we examine whether and how changes in personal bankruptcy laws, viewed as a shock to employees’ expected personal wealth, affect corporate policies. Following a reform in personal bankruptcy laws that limits individuals’ access to bankruptcy protection, firms more affected by this regulation reform increase labor costs, reduce investment, and engage in less risk taking. The effects are stronger when employees have more bargaining power. Furthermore, firms in industries characterized by high unemployment risk reduce leverage. These results support the view that firms choose more conservative policies to mitigate employees’ expected welfare losses.

The Leniency of Personal Bankruptcy Regulations in the EU Countries

“…Although a relatively large number of studies examined the relationship between leniency systems, fresh start, credit rational, and entrepreneurship, only a few papers-in the third subgroup-have analysed the relationship between fresh start and credit rationale to labour supply or labour incentives (e.g., Li et al 2017;Li 2007, 2011). A recent study by Chen et al (2020) examined the effect of changes in personal bankruptcy systems on labour supply from the employer's sides. They analysed whether and how changes in personal bankruptcy laws and the access of individuals to bankruptcy protection affected labour costs and corporate policies.…”

Private bankruptcy in the Russian Federation: reality and perspectives

“…In terms of the dependence of dynamics of individual bankruptcies, theoretical value is shown by a scientific paper developed by researchers of large American universities and dedicated to the analysis of Covid-19 effects on the practice of bankruptcy in general [8] as well as researches that evaluated the role of employers and corporative policy in dynamics of individual bankruptcies [9].…”