Entry regulation as a barrier to entrepreneurship

Using a comprehensive database of European firms, we study the effect of market entry regulations on the creation of new limited-liability firms, the average size of entrants, and the growth of incumbent firms. We find that costly regulations hamper the creation of new firms, especially in industries that should naturally have high entry. These regulations also force new entrants to be see front matter r 2006 Elsevier B.V. All rights reserved. .jfineco.2005.09.006 k William Schwert, an anonymous referee, Allen Berger, Arnoud Boot, Nicola Cetorelli, Stijn ihir Desai, Simeon Djankov, Alexander Dyck, Saul Estrin, Raymond Fisman, Nicola Gennaioli, rs, Luigi Guiso, Stephen Haber, Robert Hauswald, Thomas Hellman, Simon Johnson, Steven mi Lamoreaux, Joshua Lerner, Inessa Love, Vojislav Maksimovic, Atif Mian, Enrico Perotti, Michel rta Romano, Jean-Laurent Rosenthal, Jan Svejnar, Scott Stern, Gregory Udell, Christopher d seminar participants at the Fifth International Conference on Financial Market Development in d Transition Economies in Hyderabad, American University, University of Amsterdam, University , the NBER Corporate Finance Program Meeting at the University of Chicago, the SME Conference d Bank, the Entrepreneurship Conference at Harvard Business School, the AEA meetings in and the World Bank/NYU Workshop on Entry, Entrepreneurship, and Financial Development for ments; Ying Lin and Victor Sulla for outstanding research assistance; Sebastian Roels at Bureau Van with the Amadeus data; and Brian Williams and Ryan Paul at Dun & Bradstreet for help with the treet data. Rajan thanks the National Science Foundation, the Center for the Study of the State and at the Graduate School of Business, University of Chicago for research support during part of this so thank the World Bank for financial support. An earlier version of this paper circulated under the ss Environment and Firm Entry: Evidence from International Data.’’ This paper’s findings, s, and conclusions are entirely those of the authors and do not necessarily represent the views of the the IMF, their Executive Directors, or the countries they represent. nding author. Fax: +1202 623 7271. dress: [email protected] (R. Rajan).