Financing Constraints, Home Equity and Selection into Entrepreneurship
46 Pages Posted: 7 Oct 2014 Last revised: 17 Aug 2020
Date Written: August 10, 2020
We exploit a Danish mortgage reform that differentially unlocked home equity across the population and study how this impacts selection into entrepreneurship. We find that increased entry from the treated group was concentrated among entrepreneurs whose firms were founded in industries where they had no prior work experience. Our results are consistent with a view that individuals who took advantage of the unlocked home equity were entrepreneurs with less-well-established track records, who could now overcome credit constraints by pledging tangible assets and bear greater potential risk themselves. Also consistent with this view, we find that firms founded by treated entrepreneurs included an increase in longer-lasting businesses as well as an increase in startups that were more likely to quickly-fail.
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