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Democratizing Entry: Banking Deregulations, Financing Constraints, and Entrepreneurship

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Author Info
William Kerr () (Harvard Business School, Entrepreneurial Management Unit)
Ramana Nanda () (Harvard Business School, Entrepreneurial Management Unit)

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Abstract

We examine entrepreneurship and creative destruction following US banking deregulations using Census Bureau data. US banking reforms brought about exceptional growth in both entrepreneurship and business closures. The vast majority of closures, however, were the new ventures themselves. Although we do find evidence for the standard story of creative destruction, the most pronounced impact was a massive increase in churning among new entrants. We argue that creative destruction requires many businesses failures along with the few great successes. The successes are very difficult to identify ex ante, which is why democratizing entry is an important trait of well-functioning capital markets.

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Publisher Info
Paper provided by Harvard Business School in its series Harvard Business School Working Papers with number 07-033.

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Length: 45 pages
Date of creation: Dec 2006
Date of revision: Oct 2008
Handle: RePEc:hbs:wpaper:07-033

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Related research
Keywords: banking; financial constraints; entrepreneurship; creative destruction; growth.;

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Find related papers by JEL classification:
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups

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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Rodrigo Canales & Ramana Nanda, 2008. "Bank Structure and the Terms of Lending to Small Businesses," Harvard Business School Working Papers 08-101, Harvard Business School. [Downloadable!]
  2. Ross Levine & Alexey Levkov & Yona Rubinstein, 2008. "Racial Discrimination and Competition," NBER Working Papers 14273, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Nicola Cetorelli, 2009. "Credit market competition and the nature of firms," Staff Reports 366, Federal Reserve Bank of New York. [Downloadable!]
    Other versions:
  4. Tara Rice & Philip E. Strahan, 2008. "Does credit supply affect small-firm finance?," Finance and Economics Discussion Series 2008-54, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  5. Edward L. Glaeser & William R. Kerr, 2008. "Local Industrial Conditions and Entrepreneurship: How Much of the Spatial Distribution Can We Explain?," NBER Working Papers 14407, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. Stelios Michalopoulos & Luc Laeven & Ross Levine, 2009. "Financial Innovation and Endogenous Growth," NBER Working Papers 15356, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Demirguc-Kunt, Asli & Levine, Ross, 2009. "Finance and inequality : theory and evidence," Policy Research Working Paper Series 4967, The World Bank. [Downloadable!]
    Other versions:
  8. Ramana Nanda, 2008. "Entrepreneurship and the Discipline of External Finance," Harvard Business School Working Papers 08-047, Harvard Business School. [Downloadable!]
  9. Masami Imai, 2008. "Crowding-Out Effects of a Government-Owned Depository Institution: Evidence from a Natural Experiment in Japan," Wesleyan Economics Working Papers 2008-003, Wesleyan University, Department of Economics. [Downloadable!]
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