Financing Constraints, Home Equity and Selection into Entrepreneurship

Thais Lærkholm Jensen, Søren Leth-Petersen, Ramana Nanda

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Abstract

We exploit a mortgage reform that differentially unlocked home equity across the Danish population and study how this impacted selection into entrepreneurship. We find that increased entry was concentrated among entrepreneurs whose firms were founded in industries where they had no prior work experience. Nevertheless, we find that marginal entrants benefiting from the reform had higher pre-entry earnings and a significant share of these entrants started longer-lasting firms. Our results are most consistent with a view that housing collateral enabled higher ability individuals with less-well-established track records to overcome credit rationing and start new firms, rather than only leading to ‘frivolous entry’ by those without prior industry experience.
OriginalsprogEngelsk
TidsskriftJournal of Financial Economics
Vol/bind145
Udgave nummer2 Part A
Sider (fra-til)318-337
ISSN0304-405X
DOI
StatusUdgivet - 2022

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