2. BANKRUPTCY
“bankruptcy” – neither good nor inspiring
Anti-failure bias widely shared among
entrepreneurs and related parties in an
effort to rescue failing firms from
bankruptcy
Anti-failure bias leads to wide-spread
interest in entrepreneurial success
a perspective: “bankruptcies are painful to
individual entrepreneurs and employees,
may be good for society overall”
3. Banca Rotta:
-In medieval Italy
-A harsh and cruel practice
-If bankrupt entrepreneurs did not pay their
debt, debtors would destroy the trading
bench of the bankrupt traders.
-In 1542, World’s first bankruptcy law passed
in England
-Considered punishment from Incarceration
to death
4. Entrepreneur-Friendly Bankruptcy
Law
Recently, Governments have realized…
- It lowers exit barriers
- Entrepreneurship would be encouraged
- if the pain associated with bankruptcy is
reduced (US)
- In Germany and Japan:
- Liable for unpaid debt for up to 30 years (Germany)
- A lot Japanese commit SUICIDE
- Bankrupt firm can also be liable for criminal penalties
5. What if…
Harsh bankruptcy laws still remain…
- Fewer entrepreneurs will decide to risk
launching their products.
- Entrepreneurs abandon their ideas for fear
of failure
- As consequence, entrepreneurial sector
will not thrive
- Therefore, economy will not develop
6. For example:
TheUS has EFB laws: 50% of entrepreneurs
resume a new venture in four years
Whereas,a society that severely punishes failed
entrepreneurs:
Will not learn to avoid their mistakes.
Drop out of the game, because their wisdom
and ambitions will be lost
In the worst case, kill themselves
7. FREQUENTLY USED TERMS
Entrepreneurship: identification and
exploitation of previously unexplored
opportunities
Entrepreneurs:
Founders and/or owners of
new businesses or managers of existing
firms who identify and exploit new
opportunities
8.
9. INSTITUTION-BASED VIEW
Formal institutions that govern how
entrepreneurs start up new firms either
help or hinder the growth of new firms
When formal institutional requirements are
more entrepreneur - friendly,
entrepreneurship flourishes, and in turn the
economy develops and vice-versa
In addition, informal institutions such as
cultural values and norms also affect
entrepreneurship.
10. RESOURCE-BASED VIEW
An entrepreneurial firm must :
create Value
be Rare
be Inimitable
be Organizationally embedded
• Resource-based view suggests that firm-
specific resources largely determine
entrepreneurial success and failure
11. Are they related to bankruptcy??
GROWTH
Excitement about growing a new company
attracts entrepreneurs
An entrepreneurial firm can leverage its vision,
drive, and leadership in order to grow, even
though it may be short on resources such as
financial capital
• INNOVATION
– Innovation is at the heart of entrepreneurship
– It can bring an entrepreneurial firm back to shape
12. FINANCING
4F sources of funding : Founders, Family, Friends
and Fools!!
Given the well known failure risks of start-ups,
why would anybody other than a fool be willing
to invest in start-ups??
However, in reality, these investors are not fools
as they always retain certain collateral against
their investing
Microfinance : emerged in response to the lack
of financing for entrepreneurial opportunities in
many developing countries 9started from
developing countries, but now is a global
movement)
13. QUESTION
What are the pros and cons for
entrepreneur-friendly
bankruptcy laws?
14. ANSWER
Advantages:
- Lower exit barriers
- Lower entry barrier for new
entrepreneurs
- Less suicide (e.g.Japan)
- Economies will develop
Disadvantages:
- Banks
- Investors
- Unemployment level
15. QUESTION
Why can bankruptcy laws
become an exit barrier for
an entrepreneurial firm?
16. ANSWER
It
can be an exit barrier by putting harsh
consequences on the entrepreneur.
An entrepreneur would more easily
launch a start-up if he knows that “failure”
is not for life.
17. QUESTION
Why can bankruptcy laws
become an entry barrier for
an entrepreneurial firm?
18. ANSWER
It can be a low entry barrier if the
bankruptcies laws are entrepreneurs-
friendly.
Entrepreneurs would be more willing to
create their business, if it can be done in a
quick and cheap way.
19. QUESTION
After the case, how would you
respond to the comment “Recent
news about the boom in
bankruptcies is so depressing”?
20. ANSWER
It is in fact depressing for major firms
Inthe case of SME’s, entrepreneurs have
proven to be more successful at their
second shot.
22. ANSWER
Bankruptcy
is still bad as it loses capitals
and the SME fails developping properly.
Nonetheless, it is a sign that entrepreneurs
have a chance to launch their start-up,
even if it ends up bankrupted. On the
long term it is favorable to the economy,
as it creates approximately 50% of the
value-added and generate 60% to 90% of
employement.
