Financing Constraints, Home Equity and Selection into Entrepreneurship

CEBI Working Paper 10/21

49 Pages Posted: 21 Jun 2021

See all articles by Thais Laerkholm Jensen

Thais Laerkholm Jensen

Independent

Søren Leth‐Petersen

University of Copenhagen - Department of Economics; Centre for Economic Policy Research (CEPR)

Ramana Nanda

Imperial College Business School; Harvard University - Entrepreneurial Management Unit

Multiple version iconThere are 4 versions of this paper

Date Written: June 3, 2021

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: credit constraints, entrepreneurship, household wealth, mortgage finance

JEL Classification: D14, D31, G21, L25, L26

Suggested Citation

Jensen, Thais Laerkholm and Leth-Petersen, Soren and Nanda, Ramana, Financing Constraints, Home Equity and Selection into Entrepreneurship (June 3, 2021). CEBI Working Paper 10/21, Available at SSRN: https://ssrn.com/abstract=3859412 or http://dx.doi.org/10.2139/ssrn.3859412

Thais Laerkholm Jensen

Independent ( email )

Soren Leth-Petersen (Contact Author)

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Ramana Nanda

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Harvard University - Entrepreneurial Management Unit ( email )

Boston, MA 02163
United States

HOME PAGE: http://www.people.hbs.edu/rnanda

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