Working Paper: NBER ID: w20583
Authors: Thais Lrkholm Jensen; Sren Lethpetersen; Ramana Nanda
Abstract: We exploit a mortgage reform that differentially unlocked home equity across the Danish population and study how this impacted selection into entrepreneurship. We find that increased entry was concentrated among entrepreneurs whose firms were founded in industries where they had no prior work experience. In addition, we find that marginal entrants benefiting from the reform had higher pre-entry earnings and that a significant share of entrants started longer-lasting firms. Our results are most consistent with the view that housing collateral enabled high ability individuals with less-well-established track records to overcome credit rationing and start new firms, rather than just leading to `frivolous entry' by those without prior industry experience.
Keywords: entrepreneurship; financing constraints; home equity; mortgage reform
JEL Codes: D14; D31; G21; G28; L26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Mortgage reform (G21) | Access to home equity (G51) |
| Access to home equity (G51) | High-ability individuals overcoming credit rationing (D29) |
| Post-reform entrepreneurship (L26) | Higher pre-entry earnings (J31) |
| Entrepreneurship (M13) | Firm survival (L21) |
| Access to home equity (G51) | Entrepreneurship (M13) |
| Mortgage reform (G21) | Entrepreneurship (M13) |