Home equity lending, credit constraints and small business in the US

We use Texas's constitutional amendment in 1997 that expanded the scope of home equity loans as a source of exogenous variation to estimate the effects of relaxing credit constraints on small businesses. We find, using standard panel data methods and restricted‐use microdata from the US Census...

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Bibliographic Details
Published in:Economic inquiry 2022-01, Vol.60 (1), p.43-63
Main Authors: Lastrapes, William D., Schmutte, Ian, Watson, Thor
Format: Article
Language:English
Subjects:
Amendments
Censuses
Companies
Constitutional amendments
Credit
difference‐in‐differences
entrepreneur
Equity
Finance
Home equity loans
Home financing
Job creation
Loans
natural experiment
Panel data
Small business
Texas
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Summary:We use Texas's constitutional amendment in 1997 that expanded the scope of home equity loans as a source of exogenous variation to estimate the effects of relaxing credit constraints on small businesses. We find, using standard panel data methods and restricted‐use microdata from the US Census Bureau, that the Texas amendment increased the use of home equity finance by small businesses, increased new business and job creation and reduced firm exit and job loss. The effects are larger and significant for businesses with fewer than 10 employees.
ISSN:0095-2583
1465-7295
DOI:10.1111/ecin.13026