Discussion paper

DP18394 Stock Market Wealth and Entrepreneurship

We use detailed data on stock portfolios of Norwegian households to show that stock market wealth increases entrepreneurship activity. Our research design isolates idiosyncratic, quasi-random variation in stock market returns. An increase in stock market wealth increases the propensity to start a firm, with the response concentrated in households with moderate levels of financial wealth, for whom a 20 percent increase in stock wealth increases the likelihood to start a firm by about 20\%, and in years when the aggregate stock market return in Norway is high. We develop a method to study the effect of wealth on firm outcomes that corrects for the bias introduced by selection into entrepreneurship. An increase in stock market wealth also has a causal effect on initial firm size and profitability. The pass-through from stock wealth into equity in the new firm is one-for-one, indicating that higher stock market wealth relaxes would-be entrepreneurs' financial constraints.


Chodorow-Reich, G, P Nenov, V Santos and A Simsek (2023), ‘DP18394 Stock Market Wealth and Entrepreneurship‘, CEPR Discussion Paper No. 18394. CEPR Press, Paris & London. https://cepr.org/publications/dp18394