Working Paper: NBER ID: w30933
Authors: Shai Bernstein; Emanuele Colonnelli; Mitchell Hoffman; Benjamin Iverson
Abstract: In an RCT with US small businesses, we document that a large share of firms are not well-informed about bankruptcy. Many assume that bankruptcy necessarily entails the death of a business and do not know about Chapter 11, where debts are renegotiated so that the business can continue operating. Firms also exhibit bankruptcy-related stigma, believing that bankruptcy is embarrassing, a sign of failure, and a negative signal to employees and customers. Short educational videos that address information or stigma increase knowledge and decrease stigma, both immediately and durably over 4 months. Videos increase reported interest in using Chapter 11 bankruptcy and increase intended debt and investment. However, we do not observe long-term real effects. A survey of bankruptcy attorneys and judges points to entrepreneurs’ overconfidence and, to a lesser extent, excessive perceived legal fees as first-order frictions explaining the limited real impact of treatments that only address information and stigma.
Keywords: bankruptcy; information frictions; stigma; small businesses
JEL Codes: G33; M5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Information Treatment (Y20) | Knowledge Enhancement (D83) |
| Stigma-Reducing Video Treatment (C90) | Decrease in Stigma (I24) |
| Information Treatment (Y20) | Willingness to Consider Chapter 11 Bankruptcy (G33) |
| Information Treatment (Y20) | Intended Investment and Risk-Taking Behaviors (G11) |
| Reduction in Information Unawareness (D83) | Increased Knowledge (D83) |
| Reduction in Stigma (I24) | Increased Willingness to Consider Bankruptcy (K35) |
| Educational Videos (I20) | Changes in Knowledge and Attitudes (I24) |
| Information and Stigma Interventions (D83) | Changes in Bankruptcy Utilization or Business Outcomes (K35) |