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Financing Constraints, Home Equity and Selection into Entrepreneurship

Author

Listed:
  • Thais Laerkholm Jensen

    (Danmarks Nationalbank)

  • Søren Leth-Petersen

    (University of Copenhagen)

  • Ramana Nanda

    (Harvard Business School, Entrepreneurial Management Unit)

Abstract

We exploit a mortgage reform that differentially unlocked home equity across the Danish population and study how this impacted selection into entrepreneurship. We find that increased entry was concentrated among entrepreneurs whose firms were founded in industries where they had no prior work experience. In addition, we find that marginal entrants benefiting from the reform had higher pre-entry earnings and that a significant share of entrants started longer-lasting firms. Our results are most consistent with the view that housing collateral enabled high ability individuals with less-well-established track records to overcome credit rationing and start new firms, rather than just leading to `frivolous entry' by those without prior industry experience.

Suggested Citation

  • Thais Laerkholm Jensen & Søren Leth-Petersen & Ramana Nanda, 2014. "Financing Constraints, Home Equity and Selection into Entrepreneurship," Harvard Business School Working Papers 15-020, Harvard Business School, revised May 2021.
    • Handle: RePEc:hbs:wpaper:15-020
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    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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