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Housing Collateral and Entrepreneurship

Listed author(s):
  • Thesmar , David

    ()

  • Sraer , David

    ()

This paper shows that collateral constraints restrict firm entry and post-entry growth, even in the long-run. The authors' empirical strategy uses French administrative data and exploits cross-sectional variation in local house-price appreciation as shocks to the value of collateral available to homeowners. They control for local demand shocks by comparing homeowners to two control groups that live in the same region but do not experience collateral shocks: (i) renters and (ii) homeowners with a mortgage outstanding, who -- in France -- cannot take out a second mortgage on their house. In both comparisons, the authors find that an increase in collateral value leads to a higher probability of becoming an entrepreneur. Conditional on entry, entrepreneurs with access to more valuable collateral start larger firms, use more debt, and create more value added, for at least six years after creation.

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File URL: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2541392
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Paper provided by HEC Paris in its series Les Cahiers de Recherche with number 1077.

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Length: 73 pages
Date of creation: 20 Dec 2014
Handle: RePEc:ebg:heccah:1077
Contact details of provider: Postal:
HEC Paris, 78351 Jouy-en-Josas cedex, France

Web page: http://www.hec.fr/

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  1. Ben S. Bernanke & Mark Gertler, 1986. "Agency costs, collateral, and business fluctuations," Proceedings, Federal Reserve Bank of San Francisco.
  2. Erik Hurst & Benjamin Wild Pugsley, 2011. "What do Small Businesses Do?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(2 (Fall)), pages 73-142.
  3. Holtz-Eakin, Douglas & Joulfaian, David & Rosen, Harvey S, 1994. "Sticking It Out: Entrepreneurial Survival and Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 102(1), pages 53-75, February.
  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. repec:fth:prinin:319 is not listed on IDEAS
  6. Benjamin Moll, 2014. "Productivity Losses from Financial Frictions: Can Self-Financing Undo Capital Misallocation?," American Economic Review, American Economic Association, vol. 104(10), pages 3186-3221, October.
  7. Steffen Andersen & Kasper Meisner Nielsen, 2012. "Ability or Finances as Constraints on Entrepreneurship? Evidence from Survival Rates in a Natural Experiment," Review of Financial Studies, Society for Financial Studies, vol. 25(12), pages 3684-3710.
  8. Gan, Jie, 2007. "Collateral, debt capacity, and corporate investment: Evidence from a natural experiment," Journal of Financial Economics, Elsevier, vol. 85(3), pages 709-734, September.
  9. Augustin Landier & David Thesmar, 2009. "Financial Contracting with Optimistic Entrepreneurs," Review of Financial Studies, Society for Financial Studies, vol. 22(1), pages 117-150, January.
  10. Adelino, Manuel & Schoar, Antoinette & Severino, Felipe, 2015. "House prices, collateral, and self-employment," Journal of Financial Economics, Elsevier, vol. 117(2), pages 288-306.
  11. 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.
  12. Black, Jane & de Meza, David & Jeffreys, David, 1996. "House Price, the Supply of Collateral and the Enterprise Economy," Economic Journal, Royal Economic Society, vol. 106(434), pages 60-75, January.
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