Behavioural Insights into the Impact of Bankruptcy's Public Record on Business Activity

Abstract

Many Anglo-American jurisdictions, including Australia, aim to provide debtors with a "fresh start" after a personal bankruptcy. However, to what extent can debtors achieve a fresh start if records of individual bankruptcies are publicly available, with no restrictions on their use? This research involves an economic experiment to investigate the effect of the availability of records of past behaviour, compared to their non-existence, on the behaviour of investors and agents. It shows that the availability of records increases investment, as well as repayment behaviour 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 behaviour. 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. Show more