Housing wealth, liquidity constraints and self-employment (original) (raw)
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Working Paper 08 / 03 Housing Wealth , Liquidity Constraints and Self-Employment
This paper investigates the existence of liquidity constraints facing entrepreneurs in the United Kingdom. Using a household-level panel data set, entry to selfemployment is shown to be a function of household net worth. We use inheritances and unanticipated movements in house prices as instruments for shocks to liquidity. Results indicate that inheritances are a poor instrument for liquidity constraints because both past and future inheritances predict entry to self-employment. House prices shocks are a more plausible instrument because self-employed households disproportionately re-mortgage, but our results again indicate little evidence of house price shocks unbinding liquidity constraints facing the would-be self-employed.
Liquidity Constraints, Household Wealth, and Entrepreneurship
Journal of Political Economy, 2004
The propensity to become a business owner is a non-linear function of wealth. The relationship between wealth and entry into entrepreneurship is essentially flat over the majority of the wealth distribution. It is only at the top of the wealth distribution-after the 95 th percentile-that a positive relationship can be found. Segmenting businesses into industries with high and low starting capital requirements, we find no evidence that wealth matters more for businesses requiring higher initial capital. When using inheritances as an instrument for wealth, we find that both past and future inheritances predict current business entry showing that inheritances capture more than simply liquidity. We further exploit the regional variation in house prices and find that households who lived in regions where housing prices appreciated strongly were no more likely to start a business than households in other regions.
Liquidity Constraints, Household Wealth, and Self-Employment: The Case of Older Workers
2009
Evidence of liquidity constraints affecting entrepreneurship includes increasing rates of business formation with increases in household wealth and no relationship between the likelihood of business formation and wealth at high wealth levels. Using longitudinal data from the Health and Retirement Study on workers over age 50 and employing probit regressions with a non-linear specification of household wealth and liquid wealth,
Homeowner-Entrepreneurs, Housing Capital Gains, and Self-Employment
2013
Using individual-level data from the 1985-2011 American Housing Survey panel, this paper confirms that housing capital gains encourage transitions into self-employment. Additional findings suggest that this occurs at least in part because homeownership provides an accessible source of potential financing that serves as a form of insurance for aspiring homeownerentrepreneurs. The link between homeownership and self-employment is also stronger for older homeowners who are wealthier and typically have more latitude to take on discretionary mortgage debt to finance an investment. Overall, our results provide support for arguments in previous studies that personal wealth and access to credit are important drivers of selfemployment. Our findings also provide a new justification for longstanding government support for homeownership: homeownership encourages self-employment. JEL Codes: J2, R2, M2
The Rise of Female Entrepreneurs: New Evidence on Gender Differences in Liquidity Constraints
European Economic Review, 2016
In this paper, we study the importance of liquidity constraints for entrepreneurial activity, using previously unexplored data from the UK. Using inheritances as an instrument, IV estimates reveal that single women drive the overall relationship between personal wealth and the propensity to start a new business. Defining business ownership rather than self-employment as the entrepreneurial outcome measure is also shown to be critical. Using self-employment leads to selection bias and underestimates the impact of personal wealth. The results imply that efforts aimed at relieving the liquidity constraints of single women could help further accelerate the recent rise of female entrepreneurship.
Housing Liquidity, Home Ownership and Unemployment
2000
The relationship between unemployment and the value of owner-occupied housing is studied in an economy with heterogeneous locations and search frictions in the mar- kets for both labour and houses. Dierences in labour market conditions between cities aect the liquidity of houses (i.e. the speed with which houses may be transferred be- tween households). At the same time housing market
Sticking it Out: Entrepreneurial Survival and Liquidity Constraints
Journal of Political Economy, 1994
We examine why some individuals survive as entrepreneurs and others do not. In addition, we analyze the growth of entrepreneurial enterprises, conditional on surviving. Our focus is on the role of access to capital-to what extent do liquidity constraints increase the likelihood of entrepreneurial failure? The empirical strategy is based on the following logic: If entrepreneurs cannot borrow to attain their profit-maximizing levels of capital, then those entrepreneurs who have substantial personal financial resources will be more successful than those who do not. The data consist of the 1981 and 1985 federal individual income tax returns of a group of people who received inheritances. These data allow us to identify those individuals who were sole proprietors in 1981, and to determine the extent to which the decision to remain a sole proprietor was influenced by the magnitude of the inheritance-induced increase in liquidity. The results are consistent with the notion that liquidity constraints exert a noticeable influence on the viability of entrepreneurial enterprises. For example, a $150,000 inheritance increases the probability that an individual will continue as a sole proprietor by 1.3 percentage points, and conditional on surviving, the receipts of the enterprise increase by almost 20 percent.
Foundations and Trends® in Entrepreneurship, 2006
Entrepreneurship in the UK * This paper examines the causes and consequences of changes in the incidence of entrepreneurship in the UK. Self-employment as a proportion of total employment is high by international standards in the United Kingdom, but the share has fluctuated over time. We examine the time series movements in self-employment, which are dominantly driven by financial liberalisation and changes in taxation rules, especially as they relate to the construction sector which is the dominant sector. We document that the median earnings of the self-employed is less than for employees. We show that in comparison with employees the self-employed are more likely to be male; immigrants; work in construction or financial activities; hold an apprenticeship; work in London; work long hours; have high levels of job satisfaction and happiness. Consistent with the existence of capital constraints on potential and actual entrepreneurs, the estimates imply that the probability of self-employment depends positively upon whether the individual ever received an inheritance or gift. Evidence is also found that rising house prices have increased the self-employment rate. There appears to be no evidence that changes in self-employment are correlated with changes in real GDP, nor national happiness.