Speaker: Martin C. Schmalz (Stephen M. Ross School of Business, University of Michigan) a financial economist with theoretical and empirical research interests. His latest project at the intersection of industrial organization, finance, and corporate governance measures how common ownership of firms by super-sized asset managers affects product market competition. More »
Abstract: This paper shows that collateral constraints restrict firm entry and post-entry growth, even in the long-run. Our empirical strategy uses French administrative data and exploits cross-sectional variation in local house-price appreciation as shocks to the value of collateral available to homeowners. We control for local demand shocks by comparing homeowners to two control groups that live in the same region but do not experience collateral shocks: (i) renters and (ii) homeowners with a mortgage outstanding, who - in France - cannot take out a second mortgage on their house. In both comparisons, 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 start larger firms, use more debt, and create more value added, for at least six years after creation.
Last Updated: Mar 19, 2015