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Housing Collateral and Entrepreneurship

Author

Listed:
  • Thesmar , David
  • Sraer , David
Abstract
This paper shows that collateral constraints restrict firm entry and post-entry growth, even in the long-run. The authors' empirical strategy uses French administrative data and exploits cross-sectional variation in local house-price appreciation as shocks to the value of collateral available to homeowners. They control for local demand shocks by comparing homeowners to two control groups that live in the same region but do not experience collateral shocks: (i) renters and (ii) homeowners with a mortgage outstanding, who -- in France -- cannot take out a second mortgage on their house. In both comparisons, the authors find that an increase in collateral value leads to a higher probability of becoming an entrepreneur. Conditional on entry, entrepreneurs with access to more valuable collateral start larger firms, use more debt, and create more value added, for at least six years after creation.

Suggested Citation

  • Thesmar , David & Sraer , David, 2014. "Housing Collateral and Entrepreneurship," HEC Research Papers Series 1077, HEC Paris.
    • Handle: RePEc:ebg:heccah:1077
    as

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    References listed on IDEAS

    as
    1. Thomas Chaney & David Sraer & David Thesmar, 2012. "The Collateral Channel: How Real Estate Shocks Affect Corporate Investment," American Economic Review, American Economic Association, vol. 102(6), pages 2381-2409, October.
    2. Ben S. Bernanke & Mark Gertler, 1986. "Agency costs, collateral, and business fluctuations," Proceedings, Federal Reserve Bank of San Francisco.
    3. Erik Hurst & Benjamin Wild Pugsley, 2011. "What Do Small Businesses Do?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(2 (Fall)), pages 73-142.
    4. Holtz-Eakin, Douglas & Joulfaian, David & Rosen, Harvey S, 1994. "Sticking It Out: Entrepreneurial Survival and Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 102(1), pages 53-75, February.
    5. Erik Hurst & Annamaria Lusardi, 2004. "Liquidity Constraints, Household Wealth, and Entrepreneurship," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 319-347, April.
    6. Adelino, Manuel & Schoar, Antoinette & Severino, Felipe, 2015. "House prices, collateral, and self-employment," Journal of Financial Economics, Elsevier, vol. 117(2), pages 288-306.
    7. Sandra E. Black & Philip E. Strahan, 2002. "Entrepreneurship and Bank Credit Availability," Journal of Finance, American Finance Association, vol. 57(6), pages 2807-2833, December.
    8. Steffen Andersen & Kasper Meisner Nielsen, 2012. "Ability or Finances as Constraints on Entrepreneurship? Evidence from Survival Rates in a Natural Experiment," The Review of Financial Studies, Society for Financial Studies, vol. 25(12), pages 3684-3710.
    9. Gan, Jie, 2007. "Collateral, debt capacity, and corporate investment: Evidence from a natural experiment," Journal of Financial Economics, Elsevier, vol. 85(3), pages 709-734, September.
    10. repec:hal:spmain:info:hdl:2441/75koqefued8i7pihbrl9u84p4u is not listed on IDEAS
    11. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-827, August.
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    13. Benjamin Moll, 2014. "Productivity Losses from Financial Frictions: Can Self-Financing Undo Capital Misallocation?," American Economic Review, American Economic Association, vol. 104(10), pages 3186-3221, October.
    14. Morris A. Davis & Andreas Lehnert & Robert F. Martin, 2008. "The Rent‐Price Ratio For The Aggregate Stock Of Owner‐Occupied Housing," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 54(2), pages 279-284, June.
    15. Augustin Landier & David Thesmar, 2009. "Financial Contracting with Optimistic Entrepreneurs," The Review of Financial Studies, Society for Financial Studies, vol. 22(1), pages 117-150, January.
    16. Douglas Holtz-Eakin & David Joulfaian & Harvey Rosen, 1993. "Sticking It Out: Entrepreneurial Survival and Liquidity Constraints," Working Papers 698, Princeton University, Department of Economics, Industrial Relations Section..
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Collateral; Entrepreneurship; Real estate;
    All these keywords.

    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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