From Martin Schmalz, David Sraer, and David Thesmar:
This paper shows that collateral constraints restrict entrepreneurial activity. Our empirical strategy uses variations in local house prices as shocks to the value of col- lateral available to individuals owning a house and control for local demand shocks by comparing entrepreneurial activity by homeowners and renters operating in the same region. We find that an increase in collateral value leads to a higher probability of becoming an entrepreneur. Conditional on entry, entrepreneurs with access to more valuable collateral create larger firms, more value added and are more likely to survive in the long run.
