2020
Working Paper
HBS Working Paper Series

Financing Constraints, Home Equity and Selection into Entrepreneurship

By: Thais Laerkholm Jensen, Søren Leth-Petersen and Ramana Nanda

Format:Print
| Language:English
| Pages:46

Abstract

We exploit a Danish mortgage reform that differentially unlocked home equity across the population and study how this impacts selection into entrepreneurship. We find that increased entry from the treated group was concentrated among entrepreneurs whose firms were founded in industries where they had no prior work experience. Our results are consistent with a view that individuals who took advantage of the unlocked home equity were entrepreneurs with less-well-established track records, who could now overcome credit constraints by pledging tangible assets and bear greater potential risk themselves. Also consistent with this view, we find that firms founded by treated entrepreneurs included an increase in longer-lasting businesses as well as an increase in startups that were more likely to quickly-fail.

Keywords

Mortgage Reform; Home Equity; Financing Constraints; Entrepreneurs; Entrepreneurship; Mortgages; Denmark

Citation

Jensen, Thais Laerkholm, Søren Leth-Petersen, and Ramana Nanda. "Financing Constraints, Home Equity and Selection into Entrepreneurship." Harvard Business School Working Paper, No. 15-020, October 2014. (Revised August 2020.)