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Democratizing Entry: Banking Deregulations, Financing Constraints, and Entrepreneurship

  • William Kerr

    ()

    (Harvard Business School, Entrepreneurial Management Unit)

  • Ramana Nanda

    ()

    (Harvard Business School, Entrepreneurial Management Unit)

We examine entrepreneurship and creative destruction following US banking deregulations using Census Bureau data. US banking reforms brought about exceptional growth in both entrepreneurship and business closures. The vast majority of closures, however, were the new ventures themselves. Although we do find evidence for the standard story of creative destruction, the most pronounced impact was a massive increase in churning among new entrants. We argue that creative destruction requires many businesses failures along with the few great successes. The successes are very difficult to identify ex ante, which is why democratizing entry is an important trait of well-functioning capital markets.

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File URL: http://www.hbs.edu/research/pdf/07-033.pdf
File Function: Revised version, 2008
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Paper provided by Harvard Business School in its series Harvard Business School Working Papers with number 07-033.

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Length: 45 pages
Date of creation: Dec 2006
Date of revision: Oct 2008
Handle: RePEc:hbs:wpaper:07-033
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