Housing Collateral and Entrepreneurship

44 Pages Posted: 28 Nov 2013 Last revised: 7 Oct 2014

See all articles by Martin C. Schmalz

Martin C. Schmalz

University of Oxford - Finance; CEPR; CESifo; European Corporate Governance Institute (ECGI)

David Alexandre Sraer

University of California, Berkeley; Princeton University

David Thesmar

MIT Sloan School of Management; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: November 2013

Abstract

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.

Suggested Citation

Schmalz, Martin C. and Sraer, David Alexandre and Thesmar, David, Housing Collateral and Entrepreneurship (November 2013). NBER Working Paper No. w19680, Available at SSRN: https://ssrn.com/abstract=2360948

Martin C. Schmalz (Contact Author)

University of Oxford - Finance ( email )

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CEPR ( email )

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David Alexandre Sraer

University of California, Berkeley ( email )

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Princeton University ( email )

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David Thesmar

MIT Sloan School of Management ( email )

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National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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