Democratizing Entry: Banking Deregulations, Financing Constraints, and Entrepreneurship

48 Pages Posted: 12 Jul 2007 Last revised: 13 Jan 2015

See all articles by William Kerr

William Kerr

Harvard University - Entrepreneurial Management Unit

Ramana Nanda

Harvard University - Entrepreneurial Management Unit

Date Written: December 22, 2008

Abstract

We examine entrepreneurship and creative destruction following US banking deregulations using Census Bureau data. US banking reforms brought about exceptional growth in both entrepreneurship and business closures. The vast majority of closures, however, were the new ventures themselves. Although we do find evidence for the standard story of creative destruction, the most pronounced impact was a massive increase in churning among new entrants. We argue that creative destruction requires many businesses failures along with the few great successes. The successes are very difficult to identify ex ante, which is why democratizing entry is an important trait of well-functioning capital markets.

Keywords: banking, financial constraints, entrepreneurship, creative destruction, growth

JEL Classification: E44, G21, L26, L43, M13

Suggested Citation

Kerr, William R. and Nanda, Ramana, Democratizing Entry: Banking Deregulations, Financing Constraints, and Entrepreneurship (December 22, 2008). HBS Finance Working Paper No. 07-033; US Census Bureau Center for Economic Studies Paper No. CES-WP-07-33; Harvard Business School Entrepreneurial Management Working Paper No. 07-033. Available at SSRN: https://ssrn.com/abstract=999985 or http://dx.doi.org/10.2139/ssrn.999985

William R. Kerr (Contact Author)

Harvard University - Entrepreneurial Management Unit ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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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