In the current process of restructuring the Dutch Bankruptcy Act, the present idea is that the new Act should reward risk-taking by entrepreneurs in order to stimulate innovative entrepreneurship. The rights of the creditors may therefore need to be adjusted in security at some level. For such adjustment to be implemented, knowledge on the impact of creditor rights on entrepreneurial activity and - more general - on the impact of financial structure on economic growth is deemed necessary.

Some recent studies analyse the effect of financial development, financial structure and legal instruments on economic growth. These studies reveal that financial development is important for economic growth, whereas the role of financial structure (a country's financial system can be characterised market-based as opposed to bank-based) is unclear. Secured creditor rights were found to be associated with growth. However, the cross-country analyses include many underdeveloped countries and may suffer from other shortages. The present paper builds on the available studies, making the estimated relations more suitable to an environment appropriate to the Netherlands. It also incorporates some of the financial and legal measures in an alternative model designed for explaining relations between entrepreneurial activity and economic growth.

From our analysis, it is found that having a market-based system induces economic growth. Our results, when considered in their entirety, also indicate that creditor rights may affect starting firms and existing firms differently. On the one hand, a relaxation of creditor rights may enhance entrepreneurial activity. This conclusion can be drawn from the exercises with the alternative model. On the other hand, high-secured creditor rights lead to increasing average firm size. Existing expanding firms can be the major cause of this. The analyses thus suggests that policy directed to the rights of creditors may need to distinguish between creditors of start-ups and creditors of existing firms.

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