Fresh start policies and small business activity: evidence from a natural experiment

Miguel Garcia-Posada (Banco de España)
Marco Celentani (Universidad Carlos III)
Fernando Gómez (Universitat Pompeu Fabra)


There is no consensus in the literature on whether personal bankruptcy laws should be creditor-friendly or debtor-friendly in order to promote entrepreneurship and small business activity. This paper contributes to that literature by analyzing the effect of the introduction of a fresh start policy in Spain in 2015 on the performance of micro-firms as a natural experiment, using Spanish non-micro firms and all Portuguese firms as control groups. We find that the reform raised substantially both the probability of filing for bankruptcy by Spanish micro-firms in financial distress (arguably to seek debt discharge for the business owner) and the probability that those firms exited the market because the policy required the liquidation of the debtor’s non-exempt assets. In addition, the reform increased investment and turnover in micro-firms but had no effect on their employment. Finally, the reform also promoted firm creation among micro-firms, especially in those involved in innovation activities and in sectors with high productivity.

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