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Homeownership and Entrepreneurship: The Role of Commitment and Mortgage Debt
... The lazy bank hypothesis states that collateral is not an effective measure against bankruptcy, but merely an easy way of handling SMEs (Manove et al. 2001). Still, as the bank retains the right to cancel a loan at any time, collateral, performance data and legitimacy represent significant obstacles to new enterprises (Bracke et al. 2013, De Clercq et al. 2013, Ramlall 2014. Because of the pivotal role of collateral, the size of the collateral also proves to be important. ...
... First, higher house prices mean that nascent entrepreneurs have more collateral to offer to the bank when they apply for a loan to start the business (cf. Bernanke et al. 1999, Greenspan, Kennedy 2008, Jin et al. 2012, Bracke et al. 2013. This implies that banks can grant more loans to small businesses based on the fact that there is more private collateral on the part of the owner-founder of the firm. ...
Entrepreneurs are at the core of economic development in that they start new businesses or make existing firms grow. To fulfill this important role, entrepreneurs need access to finance. Owing to information asymmetry and the relatively high risk associated with business start-ups, many financiers shy away from engaging in relationships with firms during the early stages of their development. Based on the existing body of knowledge on the financing of entrepreneurship, we know that insider finance is of paramount importance in the early stages of firms’ development. We expand this knowledge base by analyzing the influence of house prices on business start-ups across municipalities in Sweden. In our analysis, we include data from all municipalities in Sweden. Our data on house prices and control variables are collected in period one, and our data on the frequency of start-ups are collected in period two. We find that rising house prices in a municipality lead to a higher frequency of start-ups. In our regression analysis, we find that a 1% increase in house prices leads to a 0.14% increase in start-ups. Our findings are in line with the limited international research that has been previously conducted, and for this reason, they could be seen as a vital addition to the existing body of knowledge within the area of entrepreneurship and regional development.
... The relation between home ownership and entrepreneurial performance is more positive for higher collateral values of the home (Schmalz et al. 2013). On the other hand, when mortgage debt is high, home ownership may negatively influence entrepreneurship, as investments in homeownership may crowd out investments in entrepreneurship (Bracke et al. 2013). ...
We study the role of the business cycle in the individual decision of own-account workers to hire employees. Using panel data from the European Community Household Panel for the EU-15 countries, we show that own-account workers are less likely to hire employees during recessions. Next, we focus on identifying the underlying mechanisms of this negative relationship, while bearing in mind that liquidity constraints, unemployment and the prevalence of unpaid family workers are more common during recessions. First, we observe how liquidity constraints reduce the probability of transitioning from own-account worker to employer. Second, additional results from our paper suggest that formal education and former work experience (both work experience in paid employment and venture-specific work experience) are important assets for own-account workers which increase the probability that they create new jobs. Third, as a mechanism partly offsetting the lower probability of job creation during recessions, we also find that own-account workers who are assisted by unpaid family workers are more likely to start employing (salaried) personnel.
... n U.S. establishments rather than on firms. Although more research will be required on this topic, and the detailed mechanisms are currently unexplored, these preliminary findings are consistent with the unusual view that high home-ownership levels may be inimical to business formation rates. The only previous work of this kind known to us is that of Bracke et. al. (2013) who show, in BHPS data, that home-owners demonstrate a smaller likelihood of being entrepreneurial. ...
The authors explore the hypothesis that high home-ownership damages the labor market. The results are relevant to, and may be worrying for, a range of policymakers and researchers. The authors find that rises in the home-ownership rate in a US state are a precursor to eventual sharp rises in unemployment in that state. The elasticity exceeds unity: A doubling of the rate of home-ownership in a US state is followed in the long-run by more than a doubling of the later unemployment rate. What mechanism might explain this? The authors show that rises in home-ownership lead to three problems: (i) lower levels of labor mobility, (ii) greater commuting times, and (iii) fewer new businesses. The argument is not that owners themselves are disproportionately unemployed. Evidence suggests, instead, that the housing market can produce negative 'externalities' upon the labor market. The time lags are long. That gradualness may explain why these important patterns are so little-known.
Innovation and entrepreneurship are powerful drivers of economic development and essential engines for national and social progress. Since the introduction of the national “mass entrepreneurship and innovation” development strategy in 2014, the entrepreneurial market in China has grown rapidly, with a significant increase in the number of self-employed individuals and new businesses. According to data from the State Administration for Market Regulation, in the first three quarters of 2020, the number of new market entities nationwide reached 18.45 million, with an average daily increase of 67,600.
Purpose
The purpose of this paper is to analyze the relationship between housing markets and new firm formation in six different industries in all 284 municipalities in Sweden.
Methodology
The authors have used data from Statistics Sweden and The Swedish Agency for Economic and Regional Growth to develop a model to analyze the relationship between house prices and industry-specific new firm formation, with the interaction effect of financial infrastructure.
Findings
In the data, stable high house prices have no effect on entrepreneurship. However, a market with rising house prices has a positive effect on new firm formation, in retail, construction, business-to-business services and miscellaneous sectors, but produced no effect in either mining, agriculture and fishing or in manufacturing. The interaction between rising house prices and financial infrastructure does not change the positive effect on retail, business-to-business services and miscellaneous sectors, but within the construction industry, the positive effect on new firm formation disappears. In manufacturing, the authors observe the opposite – a positive effect, instead of no effect previously.
Originality/value
The contribution of this study is to provide evidence of how house prices are associated with entrepreneurship in different industries, as well as analyzing how the interaction between house prices and financial infrastructure is associated with entrepreneurship. By separating observations in time, endogeneity is controlled and a causal relationship where higher house prices is postulated, which leads to an increase in entrepreneurial activity in different industries. By using a spatial Durbin model, the authors control for spatial dependency.
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