Working Paper: CEPR ID: DP10260
Authors: Thais Laerkholm Jensen; Sren Lethpetersen; Ramana Nanda
Abstract: We exploit a mortgage reform that differentially unlocked home equity across theDanish population and study how this impacted selection into entrepreneurship.We find that increased entry was concentrated among entrepreneurs whose firmswere founded in industries where they had no prior work experience. In addition,we find that marginal entrants bene ting from the reform had higher pre-entryearnings and that a significant share of entrants started longer-lasting firms. Ourresults are most consistent with the view that housing collateral enabled high abilityindividuals with less-well-established track records to overcome credit rationing andstart new firms, rather than just leading to `frivolous entry' by those without priorindustry experience.
Keywords: entrepreneurship; financing constraints; home equity; mortgage reform
JEL Codes: G21; L26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Mortgage reform (G21) | Increase in personal debt (G51) |
| Increase in personal debt (G51) | Increase in entrepreneurship (L26) |
| Mortgage reform (G21) | Increase in entrepreneurship (L26) |
| Mortgage reform (G21) | Higher pre-entry earnings among treated individuals (J31) |
| Higher pre-entry earnings among treated individuals (J31) | Survival of new ventures (M13) |