TY - JOUR
T1 - Financing Constraints, Home Equity and Selection into Entrepreneurship
AU - Jensen, Thais Lærkholm
AU - Leth-Petersen, Søren
AU - Nanda, Ramana
PY - 2022
Y1 - 2022
N2 - 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.
AB - 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.
KW - Faculty of Social Sciences
KW - Financing constraints
KW - Entrepreneurship
KW - Mortgage
U2 - 10.1016/j.jfineco.2021.10.012
DO - 10.1016/j.jfineco.2021.10.012
M3 - Journal article
VL - 145
SP - 318
EP - 337
JO - Journal of Financial Economics
JF - Journal of Financial Economics
SN - 0304-405X
IS - 2 Part A
ER -