House Prices, Collateral and Self-Employment

Abstract

UNC, and Stanford for thoughtful comments The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Mortgage Debt and Entrepreneurship

“…that high indebtedness reduces the likelihood of starting a business -we do not find empirical evidence to support it once we control for individual unobservables. Indeed, although we find that house prices are positively correlated to entrepreneurship if we only control for local-area time-varying shocks (as in previous research; see for example Adelino et al, 2015;Corradin and Popov, 2015), this association vanishes when we focus on within-individual variation over time by using fixed-effect specifications. This is irrespective of whether we focus on individuals' self-reported current house values or cumulated capital gains accrued since the time of the first purchase; irrespective of whether we control for house prices linearly or non-linearly; and irrespective of whether we instrument house value appreciation using the approach discussed above.…”

“…This novel prediction distinguishes our framework from previous work that has emphasised the luxury/consumption value of entrepreneurship and its link to an individual's wealth. We focus on housing (rather than other components of an individuals wealth) because there is a significant body of research that studies the effect of housing on entrepreneurship -in particular the positive effect of house price growth on business formation (Hurst and Lusardi, 2004;Adelino et al, 2015;Corradin and Popov, 2015;Schmalz et al, 2016). Our conceptualization, however, is new to this literature: we highlight that mortgage debt -for the vast majority of people the main source of funding home purchases -may discourage entrepreneurial activities because of 3 The mechanisms underpinning this result imply that our prediction applies to other occupations that entail significant risks -for example, jobs in highly cyclical non-tradable sectors.…”

Policy Externalities and Banking Integration

“…Moreover, in wealthier counties, property values are likely to be higher. The extra collateral therefore provides greater debt capacity (see for example, Adelino, Schoar and Severino (2015)). …”

“…The establishment size categories are 1-4 employees, 5-9 employees, etc. To calculate total employment attributable to establishments with fewer than 10 employees I follow the approach used by Adelino, Schoar and Severino (2015). That is, I first obtain employment for each establishment size category (i.e., 1-4 employees and 5-9 employees) by multiplying the number of establishments by the middle point of that category.…”

The Labor Market Effects of Credit Market Information

“…8 See, e.g., Karlan and Zinman (2009), Mullainathan and Shafir (2013), and Kehoe et al (2014. 9 See Chatterji andSeamans (2012), Hombert et al (2014), Greenstone et al (2014), Schmalz et al (2015, and Adelino et al (2015). 10 See Low (2005), Pijoan-Mas (2006), Jayachandran (2006), and Blundell et al (2016.…”