Housing Collateral and Entrepreneurship

36 Pages Posted: 22 Dec 2014 Last revised: 20 Nov 2015

See all articles by Martin C. Schmalz

Martin C. Schmalz

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

David Alexandre Sraer

Princeton University; University of California, Berkeley

David Thesmar

Massachusetts Institute of Technology (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: October 16, 2015


This paper shows that collateral constraints restrict firm entry and post-entry growth, even in the long-run. We use French administrative data and exploit cross-sectional variation in local house-price appreciation as shocks to the value of collateral available to homeowners. We control for local demand shocks by comparing homeowners to two control groups that live in the same region but do not experience collateral shocks: (i) renters and (ii) homeowners with a mortgage outstanding, who - in France - cannot take out a second mortgage on their house. In both comparisons, 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 use more debt, start larger firms, and remain significantly larger even six years after creation.

Keywords: Collateral; Entrepreneurship; Real estate

JEL Classification: L26

Suggested Citation

Schmalz, Martin C. and Schmalz, Martin C. and Sraer, David Alexandre and Sraer, David Alexandre and Thesmar, David, Housing Collateral and Entrepreneurship (October 16, 2015). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2541392 or http://dx.doi.org/10.2139/ssrn.2541392

Martin C. Schmalz

University of Oxford - Finance ( email )

United States

CEPR ( email )

United Kingdom

CESifo ( email )

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Munich, DE-81679

European Corporate Governance Institute (ECGI) ( email )

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David Alexandre Sraer

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

Princeton University ( email )

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Princeton, NJ 08544-0708
United States

David Thesmar (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
Cambridge, MA 02142
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

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