Entrepreneurship and Credit Constraints

Forskningsenhed: EPRU

Entrepreneurial activity is often seen by policy makers and academics as a means of making the economy grow through creative destruction, i.e. a situation where less productive firms die out and new and highly productive firms are formed. The reason most often mentioned as an obstacle for starting up new businesses is credit onstraints, i.e. limited access to credit that can be used to finance start-up and sustain the success of firms that would otherwise not prosper. In Denmark there are fewer self-employed persons than in most other OECD countries, Blanchflower (2000), and only about 35% of newly started firms survive the first 5 years, cf. Jørgensen and Malchow-Møller (2007). Credit constraints could be part of the explanation. In this project the purpose is to investigate if credit constraints influence (1) the propensity to start up (2) the size of firm at start-up (3) the growth of the firm (4) the propensity for the firm to survive. For answering these questions we will employ a very large register based data set with information about entrepreneurial activities and, crucially, information about the financial situation of the (potential) entrepreneurs. For the analysis we will exploit a credit market reform introduced in 1992 that gave access for house owners to use housing equity as collateral for non housing purposes.

Read the full project description here

You can read the Working paper Housing Collateral, Credit Constraints and Entrepreneurship - Evidence from a Mortgage Reform, NBER Working Paper 20583 Thais Lærkholm Jensen, Søren Leth-Petersen, Ramana Nanda here