Les Cahiers de Recherche - HEC Paris
Housing Collateral and Entrepreneurship
() and David Sraer
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.
Keywords: Collateral; Entrepreneurship; Real estate; (follow links to similar papers)
JEL-Codes: L26; (follow links to similar papers)
73 pages, December 20, 2014
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