Boom in busts

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Boom in busts

  1. 1. Boom in Busts:Good or Bad?Sisi CHENUrusha HADAAnne NGUYEN
  2. 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. 3. Banca Rotta:-In medieval Italy-A harsh and cruel practice-If bankrupt entrepreneurs did not pay theirdebt, debtors would destroy the tradingbench of the bankrupt traders.-In 1542, World’s first bankruptcy law passedin England-Considered punishment from Incarcerationto death
  4. 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. 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. 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. 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. 8. 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.
  9. 9. 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
  10. 10. 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
  11. 11.  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)
  12. 12. QUESTION What are the pros and cons for entrepreneur-friendly bankruptcy laws?
  13. 13. ANSWER  Advantages: - Lower exit barriers - Lower entry barrier for new entrepreneurs - Less suicide (e.g.Japan) - Economies will develop  Disadvantages: - Banks - Investors - Unemployment level
  14. 14. QUESTION Why can bankruptcy laws become an exit barrier for an entrepreneurial firm?
  15. 15. 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.
  16. 16. QUESTION Why can bankruptcy laws become an entry barrier for an entrepreneurial firm?
  17. 17. 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.
  18. 18. QUESTION After the case, how would yourespond to the comment “Recent news about the boom in bankruptcies is so depressing”?
  19. 19. 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.
  20. 20. QUESTIONIn the end : Bankruptcy – is it good or bad??
  21. 21. 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.

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