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Short Term Credit Costs and U.S. Entrepreneurship

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  • Guzman, Jorge
  • Liu, Yupeng

Abstract

We estimate how variation in credit costs shapes U.S. entrepreneurship. Using a novel index counting the number and quality of daily business registrations from 1988 to 2014 and identification through heteroskedasticity, we show that small changes in the U.S. risk-free rate (3-month Treasury Bill) lead to a negative and heterogeneous effect on firm founding rates. A one percentage point increase is associated with a drop of 6.3% in the number of new firms founded seven days later, and a drop of 3.4% in the quality-adjusted quantity. The rate of firm formation gets back to baseline after six weeks, and there is no corresponding overcompensation, suggesting that the loss is permanent.

Suggested Citation

  • Guzman, Jorge & Liu, Yupeng, 2019. "Short Term Credit Costs and U.S. Entrepreneurship," SocArXiv ap978, Center for Open Science.
    • Handle: RePEc:osf:socarx:ap978
    DOI: 10.31219/osf.io/ap978
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    References listed on IDEAS

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