House Prices, Collateral and Self-Employment

Manuel Adelino, Antoinette Schoar, Felipe Severino

NBER Working Paper No. 18868
Issued in March 2013
NBER Program(s):Corporate Finance, Economic Fluctuations and Growth, Labor Studies

This paper documents the role of the collateral lending channel to facilitate small business starts and self-employment in the period before the financial crisis of 2008. We document that between 2002 and 2007 areas with a bigger run up in house prices experienced a strong increase in employment in small businesses compared to employment in large firms in the same industries. This increase in small business employment was particularly pronounced in (1) industries that need little startup capital and can thus more easily be financed out of increases in housing as collateral; (2) manufacturing industries where goods are shipped over long distances, which rules out that local demand is driving the expansion. We show that this effect is separate from an aggregate demand channel that relies on home equity based borrowing leading to increased demand and employment creation.

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Document Object Identifier (DOI): 10.3386/w18868

Published: Journal of Financial Economics Volume 117, Issue 2, August 2015, Pages 288–306 Cover image House prices, collateral, and self-employment ☆ Manuel Adelinoa, , , Antoinette Schoarb, , Felipe Severinoc, citation courtesy of

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