Discussion paper

DP10260 Financing Constraints, Home Equity and Selection into Entrepreneurship

We exploit a mortgage reform that differentially unlocked home equity across the
Danish population and study how this impacted selection into entrepreneurship.
We find that increased entry was concentrated among entrepreneurs whose firms
were founded in industries where they had no prior work experience. In addition,
we find that marginal entrants bene ting from the reform had higher pre-entry
earnings and that a significant share of entrants started longer-lasting firms. Our
results are most consistent with the view that housing collateral enabled high ability
individuals with less-well-established track records to overcome credit rationing and
start new firms, rather than just leading to `frivolous entry' by those without prior
industry experience.


Nanda, R (2014), ‘DP10260 Financing Constraints, Home Equity and Selection into Entrepreneurship‘, CEPR Discussion Paper No. 10260. CEPR Press, Paris & London. https://cepr.org/publications/dp10260