NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Housing Collateral and Entrepreneurship

Martin C. Schmalz, David A. Sraer, David Thesmar

NBER Working Paper No. 19680
Issued in November 2013
NBER Program(s):   CF   PR

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.

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Document Object Identifier (DOI): 10.3386/w19680

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