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The impact of consumer credit access on self-employment and entrepreneurship

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Listed:
  • Herkenhoff, Kyle
  • Phillips, Gordon M.
  • Cohen-Cole, Ethan

Abstract

We examine how consumer credit affects entrepreneurship by linking three million earnings and pass-through tax records to credit reports. In the cross-section, we show that self-employment without employees and employer firm ownership increase monotonically with credit limits and credit scores. We then isolate individuals who have had discrete increases in credit limits after the exogenous removal of bankruptcy flags to measure the effects of personal credit on entrepreneurship. Following bankruptcy flag removal, individuals are more likely to start a new employer business and borrow extensively. Those who own businesses with employees borrow $40,000 more after bankruptcy flag removal, a 33% gain relative to the sample average.

Suggested Citation

  • Herkenhoff, Kyle & Phillips, Gordon M. & Cohen-Cole, Ethan, 2021. "The impact of consumer credit access on self-employment and entrepreneurship," Journal of Financial Economics, Elsevier, vol. 141(1), pages 345-371.
    • Handle: RePEc:eee:jfinec:v:141:y:2021:i:1:p:345-371
    DOI: 10.1016/j.jfineco.2021.03.004
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    References listed on IDEAS

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    More about this item

    Keywords

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    JEL classification:

    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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