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Housing Collateral and Entrepreneurship

  • Martin C. Schmalz
  • David A. Sraer
  • David Thesmar

This paper shows that collateral constraints restrict entrepreneurial activity. Our empirical strategy uses variations in local house prices as shocks to the value of collateral available to individuals owning a house and controls for local demand shocks by comparing entrepreneurial activity of homeowners and renters operating in the same region. We 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 create larger firms and more value added, and are more likely to survive, even in the long run.

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File URL: http://www.nber.org/papers/w19680.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19680.

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Date of creation: Nov 2013
Date of revision:
Handle: RePEc:nbr:nberwo:19680
Note: CF PR
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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  1. 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.
  2. 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.
  3. Ben Bernanke & Mark Gertler, 1986. "Agency costs, collateral, and business fluctuations," Proceedings, Federal Reserve Bank of San Francisco.
  4. Erik Hurst & Benjamin Wild Pugsley, 2011. "What do Small Businesses Do?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 43(2 (Fall)), pages 73-142.
  5. 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 808-27, August.
  6. 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.
  7. Manuel Adelino & Antoinette Schoar & Felipe Severino, 2013. "House Prices, Collateral and Self-Employment," NBER Working Papers 18868, National Bureau of Economic Research, Inc.
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