1. Financing constraints, home equity and selection into entrepreneurship
- Author
-
Thais Lærkholm Jensen, Søren Leth-Petersen, and Ramana Nanda
- Subjects
Home equity ,Economics and Econometrics ,Entrepreneurship ,Labour economics ,Exploit ,Earnings ,Collateral ,Strategy and Management ,1502 Banking, Finance and Investment ,Work experience ,1606 Political Science ,Accounting ,Credit rationing ,Business ,1402 Applied Economics ,Finance ,Selection (genetic algorithm) - 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.
- Published
- 2022