Entrepreneurial Wealth and Employment: Tracing Out the Effects of a Stock Market Crash

61 Pages Posted: 3 Dec 2020 Last revised: 6 Apr 2021

See all articles by Marius Alexander Kalleberg Ring

Marius Alexander Kalleberg Ring

University of Texas at Austin - Department of Finance; Statistics Norway - Research Department

Date Written: September 15, 2020


I provide evidence that adverse shocks to the wealth of business owners during the Financial Crisis had large effects on their firms' financing, employment, and investment. I use individual-level portfolio data from Norway to exploit the dispersion in stock returns during 2008–09 as a source of exogenous variation in entrepreneurs' wealth. I then trace out the effects of these shocks to the entrepreneurs' privately-held firms. I find that the adverse employment and investment effects are primarily driven by young firms who—relative to mature firms—obtain considerably less bank financing following an owner wealth shock. Firms adjust employment primarily through hiring less, rather than firing, consistent with firms providing extensive-margin insurance for existing workers. These findings provide a causal link between asset price shocks and the real economy; and document that equity-financing frictions and the procyclicality of entrepreneurial wealth are important channels through which economic shocks amplify.

Keywords: Entrepreneurship, Stock Market Wealth, Financial Crisis, Economic Crises, Small businesses, Financial constraints

JEL Classification: G01, G32, G50, E24, J23

Suggested Citation

Ring, Marius Alexander Kalleberg, Entrepreneurial Wealth and Employment: Tracing Out the Effects of a Stock Market Crash (September 15, 2020). Available at SSRN: https://ssrn.com/abstract=3716347 or http://dx.doi.org/10.2139/ssrn.3716347

Marius Alexander Kalleberg Ring (Contact Author)

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States

Statistics Norway - Research Department ( email )

Kongens Gt. 6
PO Box 8131 Dep
N-0033 Oslo

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