House Prices, Collateral and Self-Employment
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.
We thank Leonid Kogan, Gregor Matvos, Holger Mueller, Ben Pugsley, David Robinson, and seminar participants at Duke, Jackson Hole Finance Conference, MIT, NBER Entrepreneurship Meeting, Princeton, UNC, and Stanford for thoughtful comments The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
- The increase in start-ups and small-business hiring was more pronounced in areas with high run-ups in home values. Collateral...
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