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Housing Collateral, Credit Constraints and Entrepreneurship - Evidence from a Mortgage Reform

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  • Thais Lærkholm Jensen
  • Søren Leth-Petersen
  • Ramana Nanda

Abstract

We study how a mortgage reform that exogenously increased access to credit had an impact on entrepreneurship, using individual-level micro data from Denmark. The reform allows us to disentangle the role of credit access from wealth effects that typically confound analyses of the collateral channel. We find that a $30,000 increase in credit availability led to a 12 basis point increase in entrepreneurship, equivalent to a 4% increase in the number of entrepreneurs. New entrants were more likely to start businesses in sectors where they had no prior experience, and were more likely to fail than those who did not benefit from the reform. Our results provide evidence that credit constraints do affect entrepreneurship, but that the overall magnitudes are small. Moreover, the marginal individuals selecting into entrepreneurship when constraints are relaxed may well be starting businesses that are of lower quality than the average existing businesses, leading to an increase in churning entry that does not translate into a sustained increase in the overall level of entrepreneurship.

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  • Thais Lærkholm Jensen & Søren Leth-Petersen & Ramana Nanda, 2014. "Housing Collateral, Credit Constraints and Entrepreneurship - Evidence from a Mortgage Reform," NBER Working Papers 20583, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:20583
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    References listed on IDEAS

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    1. Zeldes, Stephen P, 1989. "Consumption and Liquidity Constraints: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 305-346, April.
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    9. 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.
    10. 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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    Cited by:

    1. Bracke, Philippe & Hilber, Christian A.L. & Silva, Olmo, 2018. "Mortgage debt and entrepreneurship," Journal of Urban Economics, Elsevier, vol. 103(C), pages 52-66.
    2. Paul Jackson & Florian Madison, 2019. "Entrepreneurial finance, home equity, and monetary policy," ECON - Working Papers 322, Department of Economics - University of Zurich, revised Jun 2020.
    3. Roberto M. Samaniego & Juliana Yu Sun, 2019. "Entrepreneurship, College, and Credit: The Golden Triangle," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(7), pages 1765-1813, October.
    4. Kyle Herkenhoff, 2016. "The Impact of Consumer Credit Access on Employment, Earnings and Entrepreneurship," 2016 Meeting Papers 781, Society for Economic Dynamics.
    5. Bezemer, Dirk & Samarina, Anna & Zhang, Lu, 2020. "Does mortgage lending impact business credit? Evidence from a new disaggregated bank credit data set," Journal of Banking & Finance, Elsevier, vol. 113(C).
    6. 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.
    7. Ellis Connolly & Gianni La Cava & Matthew Read, 2015. "Housing Prices and Entrepreneurship: Evidence for the Housing Collateral Channel in Australia," RBA Annual Conference Volume (Discontinued), in: Angus Moore & John Simon (ed.),Small Business Conditions and Finance, Reserve Bank of Australia.
    8. 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.
    9. Philippe Bracke & Christian Hilber & Olmo Silva, 2014. "Homeownership and Entrepreneurship: The Role of Mortgage Debt and Commitment," CESifo Working Paper Series 5048, CESifo.
    10. 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.
    11. Sari Kerr & William R. Kerr & Ramana Nanda, 2015. "House Prices, Home Equity and Entrepreneurship: Evidence from U.S. Census Micro Data," NBER Working Papers 21458, National Bureau of Economic Research, Inc.
    12. Sari Pekkala Kerr & William R. Kerr & Ramana Nanda, 2015. "House Money and Entrepreneurship," Harvard Business School Working Papers 15-069, Harvard Business School.
    13. Steven J. Davis & John C. Haltiwanger, 2019. "Dynamism Diminished: The Role of Housing Markets and Credit Conditions," NBER Working Papers 25466, National Bureau of Economic Research, Inc.
    14. Li, Yue & Mastrogiacomo, Mauro & Hochguertel, Stefan & Bloemen, Hans, 2016. "The role of wealth in the start-up decision of new self-employed: Evidence from a pension policy reform," Labour Economics, Elsevier, vol. 41(C), pages 280-290.

    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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