IDEAS home Printed from https://ideas.repec.org/p/cen/wpaper/20-32.html
   My bibliography  Save this paper

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

Author

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
    as

    Download full text from publisher

    File URL: https://www2.census.gov/ces/wp/2020/CES-WP-20-32.pdf
    File Function: First version, 2020
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. 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.
    2. Bruno Ferman & Cristine Pinto, 2019. "Inference in Differences-in-Differences with Few Treated Groups and Heteroskedasticity," The Review of Economics and Statistics, MIT Press, vol. 101(3), pages 452-467, July.
    3. Robert W. Fairlie & Alicia M. Robb, 2008. "Race and Entrepreneurial Success: Black-, Asian-, and White-Owned Businesses in the United States," MIT Press Books, The MIT Press, edition 1, volume 1, number 026206281x.
    4. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-827, August.
    5. Morgan Kelly, 2020. "Understanding Persistence," Working Papers 202023, School of Economics, University College Dublin.
    6. Martin C. Schmalz & David A. Sraer & David Thesmar, 2017. "Housing Collateral and Entrepreneurship," Journal of Finance, American Finance Association, vol. 72(1), pages 99-132, February.
    7. Erik Hurst & Annamaria Lusardi, 2004. "Liquidity Constraints, Household Wealth, and Entrepreneurship," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 319-347, April.
    8. Kumar, Anil & Liang, Che-Yuan, 2019. "Credit constraints and GDP growth: Evidence from a natural experiment," Economics Letters, Elsevier, vol. 181(C), pages 190-194.
    9. Anil Kumar, 2018. "Do Restrictions on Home Equity Extraction Contribute to Lower Mortgage Defaults? Evidence from a Policy Discontinuity at the Texas Border," American Economic Journal: Economic Policy, American Economic Association, vol. 10(1), pages 268-297, February.
    10. Teresa C Fort & John Haltiwanger & Ron S Jarmin & Javier Miranda, 2013. "How Firms Respond to Business Cycles: The Role of Firm Age and Firm Size," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 61(3), pages 520-559, August.
    11. Chadi S. Abdallah & William D. Lastrapes, 2012. "Home Equity Lending and Retail Spending: Evidence from a Natural Experiment in Texas," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(4), pages 94-125, October.
    12. Manuel Adelino & Song Ma & David Robinson, 2017. "Firm Age, Investment Opportunities, and Job Creation," Journal of Finance, American Finance Association, vol. 72(3), pages 999-1038, June.
    13. Robert W. Fairlie, 2013. "Entrepreneurship, Economic Conditions, and the Great Recession," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(2), pages 207-231, June.
    14. Kelly, Morgan, 2020. "Understanding Persistence," CEPR Discussion Papers 15246, C.E.P.R. Discussion Papers.
    15. Claire Lelarge & David Sraer & David Thesmar, 2010. "Entrepreneurship and Credit Constraints: Evidence from a French Loan Guarantee Program," NBER Chapters, in: International Differences in Entrepreneurship, pages 243-273, National Bureau of Economic Research, Inc.
    16. Ron S Jarmin & Javier Miranda, 2002. "The Longitudinal Business Database," Working Papers 02-17, Center for Economic Studies, U.S. Census Bureau.
    17. Ron Jarmin & C.J. Krizan, 2010. "Past Experience and Future Success: New Evidence on Owner Characteristics and Firm Performance," Working Papers 10-24, Center for Economic Studies, U.S. Census Bureau.
    18. Laerkholm Jensen, Thais & Leth-Petersen, Søren & Nanda, Ramana, 2014. "Housing Collateral, Credit Constraints and Entrepreneurship - Evidence from a Mortgage Reform," CEPR Discussion Papers 10260, C.E.P.R. Discussion Papers.
    19. Edvard Johansson, 2000. "Self‐employment and Liquidity Constraints: Evidence from Finland," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(1), pages 123-134, March.
    20. Jenny Nykvist, 2008. "Entrepreneurship and Liquidity Constraints: Evidence from Sweden," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(1), pages 23-43, March.
    21. Atif R. Mian & Amir Sufi, 2012. "What explains high unemployment? The aggregate demand channel," NBER Working Papers 17830, National Bureau of Economic Research, Inc.
    22. Alicia M. Robb & David T. Robinson, 2014. "The Capital Structure Decisions of New Firms," Review of Financial Studies, Society for Financial Studies, vol. 27(1), pages 153-179, January.
    23. Teresa C. Fort & Shawn D. Klimek, 2018. "The Effects of Industry Classification Changes on US Employment Composition," Working Papers 18-28, Center for Economic Studies, U.S. Census Bureau.
    Full references (including those not matched with items on IDEAS)

    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. 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.
    2. Manuel Adelino & Song Ma & David T. Robinson, 2014. "Firm Age, Investment Opportunities, and Job Creation," NBER Working Papers 19845, National Bureau of Economic Research, Inc.
    3. Sari Pekkala Kerr & William R. Kerr & Ramana Nanda, 2015. "House Money and Entrepreneurship," Harvard Business School Working Papers 15-069, Harvard Business School.
    4. Kyle Herkenhoff, 2016. "The Impact of Consumer Credit Access on Employment, Earnings and Entrepreneurship," 2016 Meeting Papers 781, Society for Economic Dynamics.
    5. Robert W. Fairlie, 2013. "Minority and immigrant entrepreneurs: access to financial capital," Chapters, in: Amelie F. Constant & Klaus F. Zimmermann (ed.), International Handbook on the Economics of Migration, chapter 8, pages 153-175, Edward Elgar Publishing.
    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. Hansson, Åsa & Kopsch, Fredrik, 2020. "Property Values and the Likelihood of Self-Employment," Working Paper Series 1376, Research Institute of Industrial Economics.
    8. Hansson, Åsa & Kopsch, Fredrik, 2020. "Property Values and the Likelihood of Self-Employment," Working Papers 2020:26, Lund University, Department of Economics.
    9. Ross Levine & Yona Rubinstein, 2018. "Selection into Entrepreneurship and Self-Employment," NBER Working Papers 25350, National Bureau of Economic Research, Inc.
    10. Bracke, Philippe & Hilber, Christian A.L. & Silva, Olmo, 2018. "Mortgage debt and entrepreneurship," Journal of Urban Economics, Elsevier, vol. 103(C), pages 52-66.
    11. Engelberg, Joseph E. & Guzman, Jorge & Lu, Runjing & Mullins, William, 2021. "Partisan Entrepreneurship," SocArXiv qhs6j, Center for Open Science.
    12. Jie Chen & Mingzhi Hu, 2019. "What types of homeowners are more likely to be entrepreneurs? The evidence from China," Small Business Economics, Springer, vol. 52(3), pages 633-649, March.
    13. Philippe Bracke & Christian Hilber & Olmo Silva, 2014. "Homeownership and Entrepreneurship: The Role of Mortgage Debt and Commitment," CESifo Working Paper Series 5048, CESifo.
    14. Adelino, Manuel & Schoar, Antoinette & Severino, Felipe, 2015. "House prices, collateral, and self-employment," Journal of Financial Economics, Elsevier, vol. 117(2), pages 288-306.
    15. Robert M. Feinberg & Daniel Kuehn, 2020. "Does a Guaranteed Basic Income Encourage Entrepreneurship? Evidence from Alaska," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 57(3), pages 607-626, November.
    16. Alessio D’Ignazio & Carlo Menon, 2020. "Causal Effect of Credit Guarantees for Small‐ and Medium‐Sized Enterprises: Evidence from Italy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(1), pages 191-218, January.
    17. Dmitriy Sergeyev & Neil Mehrotra, 2015. "Financial Shocks and Job Flows," 2015 Meeting Papers 520, Society for Economic Dynamics.
    18. Saleem Bahaj & Angus Foulis & Gabor Pinter, 2016. "The Residential Collateral Channel," Discussion Papers 1607, Centre for Macroeconomics (CFM), revised Jun 2016.
    19. Han, Bing & Han, Lu & Zhou, Zhengyi, 2020. "Housing Market and Entrepreneurship: Micro Evidence from China," MPRA Paper 102597, University Library of Munich, Germany, revised 17 Aug 2020.
    20. Robert W. Fairlie & Harry A. Krashinsky, 2012. "Liquidity Constraints, Household Wealth, And Entrepreneurship Revisited," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 58(2), pages 279-306, June.

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:cen:wpaper:20-32. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/cesgvus.html .

    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: Dawn Anderson (email available below). General contact details of provider: https://edirc.repec.org/data/cesgvus.html .

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.