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Housing Wealth, Liquidity Constraints and Self-Employment

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  • Richard Disney
  • John Gathergood

Abstract

This paper investigates the existence of liquidity constraints facing entrepreneurs in the United Kingdom. Using a household-level panel data set, entry to selfemployment is shown to be a function of household net worth. We use inheritances and unanticipated movements in house prices as instruments for shocks to liquidity. Results indicate that inheritances are a poor instrument for liquidity constraints because both past and future inheritances predict entry to self-employment. House prices shocks are a more plausible instrument because self-employed households disproportionately re-mortgage, but our results again indicate little evidence of house price shocks unbinding liquidity constraints facing the would-be self-employed.

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  • Richard Disney & John Gathergood, "undated". "Housing Wealth, Liquidity Constraints and Self-Employment," Discussion Papers 08/03, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
  • Handle: RePEc:not:notcfc:08/03
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    References listed on IDEAS

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    7. Richard Disney & Sarah Bridges & John Gathergood, "undated". "Housing Wealth and Household Indebtedness: Is there a Household ‘Financial Accelerator’?," Discussion Papers 06/01, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    8. 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.
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    10. Taylor, Mark P, 2001. "Self-Employment and Windfall Gains in Britain: Evidence from Panel Data," Economica, London School of Economics and Political Science, vol. 68(272), pages 539-565, November.
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    Cited by:

    1. Joanna Tyrowicz & Magdalena Smyk & Barbara Liberda, 2017. "Talent workers as entrepreneurs: a new approach to aspirational self-employment," Bank i Kredyt, Narodowy Bank Polski, vol. 48(6), pages 571-592.
    2. Jeremy G. Weber & Nigel Key, 2014. "Do Wealth Gains from Land Appreciation Cause Farmers to Expand Acreage or Buy Land?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 96(5), pages 1334-1348.
    3. Darja Reuschke, 2011. "Self-Employment and Geographical Mobility in Germany," SOEPpapers on Multidisciplinary Panel Data Research 417, DIW Berlin, The German Socio-Economic Panel (SOEP).
    4. Clark, Ken & Drinkwater, Stephen & Robinson, Catherine, 2015. "Self?Employment amongst Migrant Groups in England and Wales: New Evidence from Census Microdata," IZA Discussion Papers 9539, Institute for the Study of Labor (IZA).
    5. Bracke, Philippe & Hilber, Christian A.L. & Silva, Olmo, 2018. "Mortgage debt and entrepreneurship," Journal of Urban Economics, Elsevier, vol. 103(C), pages 52-66.
    6. Ken Clark & Stephen Drinkwater & Catherine Robinson, 2017. "Self-employment amongst migrant groups: new evidence from England and Wales," Small Business Economics, Springer, vol. 48(4), pages 1047-1069, April.
    7. Fu, Shihe & Liao, Yu & Zhang, Junfu, 2016. "The effect of housing wealth on labor force participation: Evidence from China," Journal of Housing Economics, Elsevier, vol. 33(C), pages 59-69.
    8. Richard Disney & John Gathergood, 2013. "House Prices, Wealth Effects and Labour Supply," Discussion Papers 13/02, University of Nottingham, School of Economics.
    9. Schäfer, Dorothea & Talavera, Oleksandr & Weir, Charlie, 2011. "Entrepreneurship, windfall gains and financial constraints: Evidence from Germany," Economic Modelling, Elsevier, vol. 28(5), pages 2174-2180, September.
    10. Sauer, Robert M. & Wilson, Tanya, 2016. "The rise of female entrepreneurs: New evidence on gender differences in liquidity constraints," European Economic Review, Elsevier, vol. 86(C), pages 73-86.
    11. Dahl, Michael S. & van Praag, Mirjam C. & Thompson, Peter, 2014. "Entrepreneurial Couples," IZA Discussion Papers 8186, Institute for the Study of Labor (IZA).
    12. Weber, Jeremy G. & Key, Nigel D., 2013. "Does proprietor wealth influence small business decisions? Land appreciation and farm business borrowing, land ownership, and output," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150408, Agricultural and Applied Economics Association.
    13. Frank M. Fossen, 2012. "Gender differences in entrepreneurial choice and risk aversion -- a decomposition based on a microeconometric model," Applied Economics, Taylor & Francis Journals, vol. 44(14), pages 1795-1812, May.
    14. Nadia Simoes & Nuno Crespo & Sandrina B. Moreira, 2016. "Individual Determinants Of Self-Employment Entry: What Do We Really Know?," Journal of Economic Surveys, Wiley Blackwell, vol. 30(4), pages 783-806, September.
    15. Sousa, Ricardo M., 2010. "Consumption, (dis)aggregate wealth, and asset returns," Journal of Empirical Finance, Elsevier, vol. 17(4), pages 606-622, September.
    16. Philippe Bracke & Christian Hilber & Olmo Silva, 2012. "Homeownerhip and Entrepreneurship," SERC Discussion Papers 0103, Spatial Economics Research Centre, LSE.
    17. Lofstrom, Magnus & Bates, Timothy & Parker, Simon C., 2014. "Why are some people more likely to become small-businesses owners than others: Entrepreneurship entry and industry-specific barriers," Journal of Business Venturing, Elsevier, vol. 29(2), pages 232-251.
    18. William Barnett & Mingzhi Hu & Xue Wang, 2018. "Does the Utilization of Information Communication Technology Promote Entrepreneurship: Evidence from Rural China," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201802, University of Kansas, Department of Economics, revised Feb 2018.
    19. repec:eee:juecon:v:99:y:2017:i:c:p:120-135 is not listed on IDEAS
    20. Joanna Tyrowicz & Magdalena Smyk, 2017. "Pushed into necessity? Labor market inequality and entrepreneurship of disadvantaged group," GRAPE Working Papers 6, GRAPE Group for Research in Applied Economics.
    21. Frank M. Fossen, 2012. "Risk Attitudes and Private Business Equity," Discussion Papers of DIW Berlin 1209, DIW Berlin, German Institute for Economic Research.
    22. Philippe Bracke & Christian Hilber & Olmo Silva, 2012. "Homeownerhip and Entrepreneurship," SERC Discussion Papers 0103, Spatial Economics Research Centre, LSE.
    23. Brown, Jason & Fitzgerald, Timothy & Weber, Jeremy G., 2016. "Asset Ownership, Windfalls, and Income: Evidence from Oil and Gas Royalties," Research Working Paper RWP 16-12, Federal Reserve Bank of Kansas City.

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    Keywords

    Self-employment; liquidity; windfalls.;

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