Behavioral insights into the impact of bankruptcy’s public record on business activity

authored by

Nicola Howell, Ann-Kathrin Koessler, Rosalind Mason, Uwe Dulleck

Abstract

Many Anglo-American jurisdictions, including Australia, aim to provide debtors with a “fresh start” after a personal bankruptcy. However, we query the extent to which debtors can achieve a fresh start if records of individual bankruptcies are publicly available, with no restrictions on their use.

To inform the legal policy question of whether bankruptcy records should be publicly available, we study in an economic experiment the effect of the availability of records of past behavior, compared to their non-existence. The experiment allows us to identify empirically the effect that the exposure of history of returns has on the behavior of investors and agents. Our exploratory research shows that the availability of records increases investment. Availability also increases repayment behavior by agents, but only if the agent has no history of non-return of payments. If, however, an agent failed to return payments in the past, and this information is available, agents show lower instances of return behavior. These findings may be translated to the personal insolvency environment to explore the impact of the public availability of bankruptcy records on debtors and investors, and to inform the legal policy question of whether, and for how long, public records should be available.

External Organisation(s)

Queensland University of Technology

Type

Article

Journal

Insolvency Law Journal

Volume

2020

Pages

125-148

Publication date

2020

Publication status

Published

Peer reviewed

Yes

Electronic version(s)

https://eprints.qut.edu.au/205702/ (Access: Open)