IDEAS home Printed from https://ideas.repec.org/a/kap/sbusec/v50y2018i3d10.1007_s11187-017-9906-2.html
   My bibliography  Save this article

Household wealth inequality, entrepreneurs’ financial constraints, and the great recession: evidence from the Kauffman Firm Survey

Author

Listed:
  • Fabio Braggion

    (CentER - Tilburg University
    Department of Finance)

  • Mintra Dwarkasing

    (Erasmus University Rotterdam
    Erasmus School of Economics, Business Economics)

  • Steven Ongena

    (University of Zürich, SFI and CEPR
    University of Zürich)

Abstract

We empirically test if household wealth inequality affects borrowing constraints of young entrepreneurs. We construct a measure of wealth inequality at the US county level based on the distribution of financial rents in 2004. We find that in more unequal areas, entrepreneurs are less likely to apply for a loan fearing that their applications will be turned down and they use more of their own funds to finance their ventures. In more unequal areas, the number of bank establishments per capita is lower, this effect being stronger during the 2007–2008 financial crisis.

Suggested Citation

  • Fabio Braggion & Mintra Dwarkasing & Steven Ongena, 2018. "Household wealth inequality, entrepreneurs’ financial constraints, and the great recession: evidence from the Kauffman Firm Survey," Small Business Economics, Springer, vol. 50(3), pages 533-543, March.
    • Handle: RePEc:kap:sbusec:v:50:y:2018:i:3:d:10.1007_s11187-017-9906-2
    DOI: 10.1007/s11187-017-9906-2
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11187-017-9906-2
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11187-017-9906-2?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Fabio Braggion & Mintra Dwarkasing & Steven Ongena, 2021. "Household Inequality, Entrepreneurial Dynamism, and Corporate Financing [The colonial origins of comparative development: An empirical investigation]," The Review of Financial Studies, Society for Financial Studies, vol. 34(5), pages 2448-2507.
    2. Stanley L. Engerman & Kenneth Lee Sokoloff, 2002. "Factor Endowments, Inequality, and Paths of Development Among New World Economies," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2002), pages 41-110, August.
    3. Charles W. Calomiris & Stephen H. Haber, 2015. "Fragile by Design: The Political Origins of Banking Crises and Scarce Credit," Economics Books, Princeton University Press, edition 1, volume 1, number 10177-2.
    4. Sonin, Konstantin, 2003. "Why the rich may favor poor protection of property rights," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 715-731, December.
    5. Gilles Postel-Vinay & Philip T. Hoffman & Jean-Laurent Rosenthal, 2007. "Surviving large losses: financial crises, the middle class, and the development of capital markets," PSE-Ecole d'économie de Paris (Postprint) halshs-00826238, HAL.
    6. Levine, Ross & Zervos, Sara, 1998. "Stock Markets, Banks, and Economic Growth," American Economic Review, American Economic Association, vol. 88(3), pages 537-558, June.
    7. Raghuram G. Rajan & Rodney Ramcharan, 2011. "Land and Credit: A Study of the Political Economy of Banking in the United States in the Early 20th Century," Journal of Finance, American Finance Association, vol. 66(6), pages 1895-1931, December.
    8. Nicola Cetorelli & Philip E. Strahan, 2006. "Finance as a Barrier to Entry: Bank Competition and Industry Structure in Local U.S. Markets," Journal of Finance, American Finance Association, vol. 61(1), pages 437-461, February.
    9. Diego Comin & Ramana Nanda, 2019. "Financial Development and Technology Diffusion," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 67(2), pages 395-419, June.
    10. Kerr, William R. & Nanda, Ramana, 2009. "Democratizing entry: Banking deregulations, financing constraints, and entrepreneurship," Journal of Financial Economics, Elsevier, vol. 94(1), pages 124-149, October.
    11. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-586, June.
    12. Vollrath, Dietrich, 2013. "Inequality and school funding in the rural United States, 1890," Explorations in Economic History, Elsevier, vol. 50(2), pages 267-284.
    13. Fabio Braggion & Mintra Dwarkasing & Steven Ongena & Itay Goldstein, 0. "Household Inequality, Entrepreneurial Dynamism, and Corporate Financing," Review of Financial Studies, Society for Financial Studies, vol. 34(5), pages 2448-2507.
    14. Glaeser, Edward & Scheinkman, Jose & Shleifer, Andrei, 2003. "The injustice of inequality," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 199-222, January.
    15. William Kerr & Ramana Nanda, 2009. "Financing Constraints and Entrepreneurship," NBER Working Papers 15498, National Bureau of Economic Research, Inc.
    16. Morck, Randall & Deniz Yavuz, M. & Yeung, Bernard, 2011. "Banking system control, capital allocation, and economy performance," Journal of Financial Economics, Elsevier, vol. 100(2), pages 264-283, May.
    17. Sandra E. Black & Philip E. Strahan, 2002. "Entrepreneurship and Bank Credit Availability," Journal of Finance, American Finance Association, vol. 57(6), pages 2807-2833, December.
    18. repec:bla:jfinan:v:59:y:2004:i:6:p:2785-2807 is not listed on IDEAS
    19. Raghuram G. Rajan, 2009. "Rent Preservation and the Persistence of Underdevelopment," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 178-218, January.
    20. Alicia M. Robb & David T. Robinson, 2014. "The Capital Structure Decisions of New Firms," The Review of Financial Studies, Society for Financial Studies, vol. 27(1), pages 153-179, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Doerr, Sebastian & Drechsel, Thomas & Lee, Donggyu, 2022. "Income Inequality and Job Creation," CEPR Discussion Papers 17342, C.E.P.R. Discussion Papers.
    2. Prieger, James E., 2023. "Local banking markets and barriers to entrepreneurship in minority and other areas," Journal of Economics and Business, Elsevier, vol. 124(C).
    3. Sebastian Doerr & Thomas Drechsel & Donggyu Lee, 2021. "Income inequality, financial intermediation, and small firms," BIS Working Papers 944, Bank for International Settlements.
    4. Prieger, James, 2023. "Local banking markets and barriers to entrepreneurship in minority and other areas: Does broadband availability help?," MPRA Paper 118102, University Library of Munich, Germany.
    5. María-Teresa Aceytuno & Celia Sánchez-López & Manuela A. de Paz-Báñez, 2020. "Rising Inequality and Entrepreneurship during Economic Downturn: An Analysis of Opportunity and Necessity Entrepreneurship in Spain," Sustainability, MDPI, vol. 12(11), pages 1-16, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Enrico Perotti, 2013. "The Political Economy of Finance," Tinbergen Institute Discussion Papers 13-034/IV/DSF53, Tinbergen Institute.
    2. Michalski, Tomasz & Ors, Evren, 2012. "(Interstate) Banking and (interstate) trade: Does real integration follow financial integration?," Journal of Financial Economics, Elsevier, vol. 104(1), pages 89-117.
    3. Jiang, Tianjiao & Levine, Ross & Lin, Chen & Wei, Lai, 2020. "Bank deregulation and corporate risk," Journal of Corporate Finance, Elsevier, vol. 60(C).
    4. Ramana Nanda & William R. Kerr, 2015. "Financing Innovation," Annual Review of Financial Economics, Annual Reviews, vol. 7(1), pages 445-462, December.
    5. repec:zbw:bofrdp:2015_028 is not listed on IDEAS
    6. Jensen, Thais Laerkholm & Leth-Petersen, Søren & Nanda, Ramana, 2022. "Financing constraints, home equity and selection into entrepreneurship," Journal of Financial Economics, Elsevier, vol. 145(2), pages 318-337.
    7. Canales, Rodrigo & Nanda, Ramana, 2012. "A darker side to decentralized banks: Market power and credit rationing in SME lending," Journal of Financial Economics, Elsevier, vol. 105(2), pages 353-366.
    8. Anne Beck & Sebastian Doerr, 2023. "The financial origins of regional inequality," BIS Working Papers 1151, Bank for International Settlements.
    9. Kerr, Sari Pekkala & Kerr, William R. & Nanda, Ramana, 2022. "House prices, home equity and entrepreneurship: Evidence from U.S. census micro data," Journal of Monetary Economics, Elsevier, vol. 130(C), pages 103-119.
    10. repec:zbw:bofrdp:urn:nbn:fi:bof-201512141480 is not listed on IDEAS
    11. Amore, Mario Daniele & Schneider, Cédric & Žaldokas, Alminas, 2013. "Credit supply and corporate innovation," Journal of Financial Economics, Elsevier, vol. 109(3), pages 835-855.
    12. Ramana Nanda & William R. Kerr, 2015. "Financing Innovation," Annual Review of Financial Economics, Annual Reviews, vol. 7(1), pages 445-462, December.
    13. repec:bof:bofrdp:urn:nbn:fi:bof-201512141480 is not listed on IDEAS
    14. Popov, Alexander, 2017. "Evidence on finance and economic growth," Working Paper Series 2115, European Central Bank.
    15. Mitchener, Kris James & Wheelock, David C., 2013. "Does the structure of banking markets affect economic growth? Evidence from U.S. state banking markets," Explorations in Economic History, Elsevier, vol. 50(2), pages 161-178.
    16. Alessandra Iannamorelli & Stefano Nobili & Antonio Scalia & Luana Zaccaria, 2024. "Asymmetric Information and Corporate Lending: Evidence from SME Bond Markets," Review of Finance, European Finance Association, vol. 28(1), pages 163-201.
    17. Berger, Allen N. & Molyneux, Phil & Wilson, John O.S., 2020. "Banks and the real economy: An assessment of the research," Journal of Corporate Finance, Elsevier, vol. 62(C).
    18. Francis, Bill & Hasan, Iftekhar & Wang, Haizhi, 2014. "Banking deregulation, consolidation, and corporate cash holdings: U.S. evidence," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 45-56.
    19. repec:cte:idrepe:id-14-03 is not listed on IDEAS
    20. Wagner, Wolf & Lambert, Thomas & Zhang, Eden Quxian, 2020. "Banks, Political Capital, and Growth," CEPR Discussion Papers 15612, C.E.P.R. Discussion Papers.
    21. Goetz, Martin R. & Gozzi, Juan Carlos, 2022. "Financial integration and the co-movement of economic activity: Evidence from U.S. states," Journal of International Economics, Elsevier, vol. 135(C).
    22. Ọláyínká Oyèkọ́lá, 2021. "Finance and inequality in a panel of US States," Empirical Economics, Springer, vol. 61(5), pages 2739-2795, November.
    23. Honjo, Yuji & Ono, Arito & Tsuruta, Daisuke, 2024. "The effect of physical collateral and personal guarantees on business startups," Journal of Economics and Business, Elsevier, vol. 130(C).
    24. Bellón, Carlos, 2014. "Bank Competition, Borrower Competition and Interest Rates," IC3JM - Estudios = Working Papers id-14-03, Instituto Mixto Carlos III - Juan March de Ciencias Sociales (IC3JM).

    More about this item

    Keywords

    Wealth inequality; Entrepreneurship; Financial constraints;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • G3 - Financial Economics - - Corporate Finance and Governance
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:sbusec:v:50:y:2018:i:3:d:10.1007_s11187-017-9906-2. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.