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Home Equity Lending, Credit Constraints and Small Business in the US

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Listed:
  • William D. Lastrapes
  • Ian Schmutte
  • Thor Watson

Abstract

We use Texas's constitutional amendment in 1997 that expanded the scope of home equity loans as a source of exogenous variation to estimate the effects of relaxing credit constraints on small businesses. We find, using standard panel data methods and restricted-use microdata from the US Census Bureau, that the Texas amendment increased the use of home equity finance by small businesses, increased new business and job creation and reduced establishment exit and job loss. The effects are larger and significant for businesses with fewer than ten employees.

Suggested Citation

  • William D. Lastrapes & Ian Schmutte & Thor Watson, 2020. "Home Equity Lending, Credit Constraints and Small Business in the US," Working Papers 20-32, Center for Economic Studies, U.S. Census Bureau.
    • Handle: RePEc:cen:wpaper:20-32
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    File URL: https://www2.census.gov/ces/wp/2020/CES-WP-20-32.pdf
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    Cited by:

    1. Bahadir, Berrak & Gumus, Inci & Schaffer, Matthew, 2024. "Does relaxing household credit constraints hurt small business lending? Evidence from a policy change in Texas," Journal of Corporate Finance, Elsevier, vol. 89(C).

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    More about this item

    Keywords

    natural experiment; Texas; entrepreneur; difference-in-differences;
    All these keywords.

    JEL classification:

    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • R0 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General
    • E0 - Macroeconomics and Monetary Economics - - General

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