Article | Journal of Financial Economics | October 2009

Democratizing Entry: Banking Deregulations, Financing Constraints, and Entrepreneurship

by William R. Kerr and Ramana Nanda


We examine entrepreneurship and creative destruction following US banking deregulations using Census Bureau data. US banking reforms brought about exceptional growth in both entrepreneurship and business closures. Most of the closures, however, were the new ventures themselves. Although we do find evidence for the standard story of creative destruction, the most pronounced impact was a massive increase in churning among new entrants. We argue that creative destruction requires many business failures along with the few great successes. The successes are very difficult to identify ex ante, which is why democratizing entry is an important trait of well-functioning capital markets.

Keywords: Entrepreneurship; Governing Rules, Regulations, and Reforms; Market Entry and Exit; Capital Markets; Banks and Banking; Growth and Development; Disruptive Innovation;


Kerr, William R., and Ramana Nanda. "Democratizing Entry: Banking Deregulations, Financing Constraints, and Entrepreneurship." Journal of Financial Economics 94, no. 1 (October 2009): 124–149.