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The Effect of Personal Financing Disruptions on Entrepreneurship

65 Pages Posted: 21 Dec 2016  

Tobin Hanspal

Goethe University Frankfurt, House of Finance - Research Center SAFE

Date Written: December 19, 2016

Abstract

I show that disruptions to personal sources of financing, aside from commercial lending supply shocks, impair the survival and growth of small businesses. Entrepreneurs holding deposit accounts at retail banking institutions that defaulted following the financial crisis reduce personal borrowing and are consequently more likely to exit their firm. Exposure to the corresponding investment losses from delisted publicly traded bank stocks strongly reduces the rate of firm survival, particularly for early-stage ventures. At the intensive margin, owners who remain in business reduce employees after personal wealth losses. My results suggest that personal finance is an important component of firm financing.

Keywords: Entrepreneurship, Small Business, Personal Finance, Financial Crisis, Bank Defaults

JEL Classification: L26, D14, G01, G11, G21, G33

Suggested Citation

Hanspal, Tobin, The Effect of Personal Financing Disruptions on Entrepreneurship (December 19, 2016). SAFE Working Paper No. 161. Available at SSRN: https://ssrn.com/abstract=2887264 or http://dx.doi.org/10.2139/ssrn.2887264

Tobin Hanspal (Contact Author)

Goethe University Frankfurt, House of Finance - Research Center SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

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