Credit and Entrepreneurs’ Income

90 Pages Posted: 29 Jun 2020 Last revised: 22 Nov 2024

See all articles by Manthos D. Delis

Manthos D. Delis

Audencia Business School

Fulvia Fringuellotti

Federal Reserve Banks - Federal Reserve Bank of New York

Steven Ongena

University of Zurich - Department Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: June 01, 2020

Abstract

Small business entrepreneurs facing credit-constraints may have significantly different future income paths compared to unconstrained entrepreneurs. We quantify this difference using uniquely detailed loan application data and a regression discontinuity design based on a bank’s credit score cutoff rule employed in the decision to grant loans. We find that application acceptance increases recipients’ income five years later by 11 percent compared to rejected loan applicants. This effect survives in a large battery of robustness tests and is driven by the use of borrowed funds to make profitable investments. We also document that our results mostly reflect an upward mobility of poor individuals.

Keywords: credit constraints, entrepreneurs’ income, business loans, economic mobility, regression discontinuity design

JEL Classification: D31, E24, G21, O15

Suggested Citation

Delis, Manthos D. and Fringuellotti, Fulvia and Ongena, Steven R. G., Credit and Entrepreneurs’ Income (June 01, 2020). FRB of New York Staff Report No. 929, Rev. November 2024.  Previous titles: “Credit, Income, and Income Inequality," "Credit and Income Inequality," "Credit, Income, and Inequality,” and “Credit and Income”, Proceedings of Paris December 2020 Finance Meeting EUROFIDAI - ESSEC, Available at SSRN: https://ssrn.com/abstract=3631252 or http://dx.doi.org/10.2139/ssrn.3631252

Manthos D. Delis

Audencia Business School ( email )

8 Road Joneliere
BP 31222
Nantes Cedex 3, 44312
France

Fulvia Fringuellotti (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of New York

33 Liberty Street
New York, NY 10045
United States

Steven R. G. Ongena

University of Zurich - Department Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

NTNU Business School ( email )

Norway

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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