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Bankruptcy laws, entrepreneurs’ socio-cognitions, and the pursuit of innovative opportunities

Abstract

This study explores the effect of bankruptcy laws on the quality of entrepreneurship and the moderating role of an entrepreneur’s socio-cognitions in it. By adopting the pursuit of innovative opportunities to represent the quality of entrepreneurship, we find that stringent bankruptcy laws inhibit an entrepreneur from pursuing more innovative opportunities, and this effect is mitigated by the entrepreneur’s self-efficacy but does not vary with fear of failure. The findings help draw a more comprehensive picture of the linkage between bankruptcy laws and entrepreneurship and advance our knowledge on factors that influence the choice among different types of opportunity. Moreover, this study is one of the first attempts to combine insights of the institution-based view of entrepreneurship and the social cognitive theory.

Plain English Summary

This study reports that stringent bankruptcy laws impede entrepreneurs from pursuing more innovative opportunities, and this impact is mitigated by entrepreneurs’ self-efficacy but does not vary with fear of failure. Therefore, to promote entrepreneurs to pursue innovative opportunities, policymakers need to make bankruptcy laws more forgiving and friendly to failed entrepreneurs. In addition, they should provide more education and other support for entrepreneurs to help them improve self-efficacy and then overcome the negative effect of bankruptcy laws.

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Fig. 1

Notes

  1. 1.

    Stringent bankruptcy laws inhibit entrepreneurs from pursuing opportunities as well. But, this issue refers to the quantity of entrepreneurship, beyond the scope of this study.

  2. 2.

    The literature has conceptualized fear of failure along two ways (Cacciotti et al., 2016). A large part of studies “describe fear of failure as a stable disposition,” while a smaller group of studies define it “as an emotional state resulting from the perception of environmental threats” (Cacciotti & Hayton, 2015, p. 169). This study does not join in this debate, and it views fear of failure as a socio-cognitive characteristic to avoid falling in the debate. More information on this debate can be seen in the review conducted by Cacciotti and Hayton (2015).

  3. 3.

    For details regarding this method to measure opportunity type, see Young et al. (2018).

  4. 4.

    For their definitions, meanings, and measures, please see the report of WGI.

  5. 5.

    Due to space considerations, we did not report results of the last three tests. They are available from the authors. We also thank one reviewer for the suggestions about these robustness tests.

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Acknowledgements

We gratefully appreciate the suggestions and comments received from Michael Fritsch (Editor) and the anonymous reviewers.

Funding

We acknowledge the National Natural Science Foundation of China (71832009, 71902072, and 71810107002) for the generous support.

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Correspondence to Zhongfeng Su.

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Ye, W., Su, Z. & Ahlstrom, D. Bankruptcy laws, entrepreneurs’ socio-cognitions, and the pursuit of innovative opportunities. Small Bus Econ (2021). https://doi.org/10.1007/s11187-021-00563-9

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Keywords

  • Bankruptcy laws
  • Opportunity type
  • Fear of failure
  • Self-efficacy
  • The social cognitive theory
  • The institution-based view of entrepreneurship
  • The quality of entrepreneurship

JEL classifications

  • D02
  • H70
  • K29
  • M13