Articles

Housing Collateral and Entrepreneurship

Martin SCHMALZ, David SRAER, D. THESMAR

The Journal of Finance

February 2017, vol. 72, n°1, pp.99-132

Departments: Finance

http://onlinelibrary.wiley.com/doi/10.1111/jofi.12468/pdf


We show that collateral constraints restrict firm entry and postentry growth, using French administrative data and cross-sectional variation in local house-price appreciation as shocks to collateral values. We control for local demand shocks by comparing treated homeowners to controls in the same region that do not experience collateral shocks: renters and homeowners with an outstanding mortgage, who (in France) cannot take out a second mortgage. In both comparisons, an increase in collateral value leads to a higher probability of becoming an entrepreneur. Conditional on entry, treated entrepreneurs use more debt, start larger firms, and remain larger in the long run.


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