How do bankruptcy laws affect entrepreneurship development around the world?

Article history: Received 20 May 2009 Received in revised form 26 April 2010 Accepted 18 May 2010 Available online 26 June 2010 How do bankruptcy laws as formal institutions affect entrepreneurship development around the world? Do entrepreneur-friendly bankruptcy laws encourage more entrepreneurship development at a societal level? We posit that if bankrupt entrepreneurs are excessively punished for failure, they may give up potentially high-return but inherently high-risk opportunities to start new businesses. Amassing a cross-country database from 29 countries spanning 19 years (1990–2008), we find that lenient, entrepreneur-friendly bankruptcy laws are significantly correlated with the level of entrepreneurship development as measured by the rate of new firm entry. © 2010 Elsevier Inc. All rights reserved.