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Ramana Nanda Talk (May 20)

When May 20, 2015
from 04:30 PM to 06:00 PM
Where Meade Room, Faculty of Economics
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Ramana Nanda 

Paper: 'Housing Collateral, Credit Constraints and Entrepreneurship - Evidence from a Mortgage Reform'

AuthorsThais Laerkholm Jensen, University of Copenhagen, Sren Leth-Petersen, University of Copenhagen, Ramana Nanda, Harvard Business School

Abstract: 

We study how a mortgage reform that exogenously increased access to credit had an impact on entrepreneurship, using individual-level micro data from Denmark. The reform allows us to disentangle the role of credit access from wealth eects that typically confound analyses of the collateral channel. We nd that a $30,000 increase in credit availability led to a 12 basis point increase in entrepreneurship, equivalent to a 4% increase in the number of entrepreneurs. New entrants were more likely to start businesses in sectors where they had no prior experience, and were more likely to fail than those who did not benet from the reform. Our results provide evidence that credit constraints do aect entrepreneurship, but that the overall magnitudes are small. Moreover, the marginal individuals selecting into entrepreneurship when constraints are relaxed may well be starting businesses that are of lower quality than the average existing businesses, leading to an increase in churning entry that does not translate into a sustained
increase in the overall level of entrepreneurship.

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