Martin C. Schmalz
University of Michigan
701 Tappan St
Ann Arbor, MI 48109
NBER Working Papers and Publications
|November 2013||Housing Collateral and Entrepreneurship|
with David A. Sraer, David Thesmar: w19680
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.