Working Paper: NBER ID: w19680
Authors: Martin C. Schmalz; David A. Sraer; David Thesmar
Abstract: 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.
Keywords: Entrepreneurship; Collateral Constraints; Housing Prices; Firm Creation
JEL Codes: G3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increased collateral (G19) | Access to more financing (G29) |
| Access to more financing (G29) | Facilitation of business creation (M13) |
| Increase in collateral value (G19) | Higher probability of becoming an entrepreneur (L26) |
| Higher house price growth (R31) | Higher probability of becoming an entrepreneur (L26) |
| Higher collateral value (G32) | Larger firms and more value added (L25) |
| Higher collateral value (G32) | Higher likelihood of survival of firms (D25) |
| Higher house price growth (R31) | Larger firms and more value added (L25) |
| Higher house price growth (R31) | Higher likelihood of survival of firms (D25) |