Housing Collateral, Credit Constraints and Entrepreneurship - Evidence from a Mortgage Reform

46 Pages Posted: 15 Oct 2014 Last revised: 28 Nov 2014

See all articles by Thais Jensen

Thais Jensen

Independent

Søren Leth‐Petersen

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

Ramana Nanda

Harvard University - Entrepreneurial Management Unit

Multiple version iconThere are 3 versions of this paper

Date Written: October 2014

Abstract

We study how a mortgage reform that exogenously increased access to credit had an impact on entrepreneurship, using individual-level micro data from Denmark. The reform allows us to disentangle the role of credit access from wealth effects that typically confound analyses of the collateral channel. We find that a $30,000 increase in credit availability led to a 12 basis point increase in entrepreneurship, equivalent to a 4% increase in the number of entrepreneurs. New entrants were more likely to start businesses in sectors where they had no prior experience, and were more likely to fail than those who did not benefit from the reform. Our results provide evidence that credit constraints do affect entrepreneurship, but that the overall magnitudes are small. Moreover, the marginal individuals selecting into entrepreneurship when constraints are relaxed may well be starting businesses that are of lower quality than the average existing businesses, leading to an increase in churning entry that does not translate into a sustained increase in the overall level of entrepreneurship.

Suggested Citation

Jensen, Thais and Leth-Petersen, Soren and Nanda, Ramana, Housing Collateral, Credit Constraints and Entrepreneurship - Evidence from a Mortgage Reform (October 2014). NBER Working Paper No. w20583. Available at SSRN: https://ssrn.com/abstract=2510591

Thais Jensen (Contact Author)

Independent ( email )

No Address Available

Soren Leth-Petersen

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

Harvard University - Entrepreneurial Management Unit ( email )

Boston, MA 02163
United States

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

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