Mortgage debt and entrepreneurship

Philippe Bracke, Christian Hilber and Olmo Silva (o.silva@lse.ac.uk)

No 560, Bank of England working papers from Bank of England

Abstract: We study the link between mortgage debt and entrepreneurship using a model of occupational choice and housing tenure in a setting where homeowners do not default on their debt. Our model predicts that, as long as the mortgage interest rate exceeds the rate of interest on liquid wealth: (i) mortgage debt, by amplifying risk aversion, diminishes the likelihood of entrepreneurship; and (ii) the negative relation between leverage and entrepreneurship increases with income volatility. Our model also shows that the link between housing wealth and entrepreneurship is ambiguously signed because of competing portfolio and hedging effects. Using the British Household Panel Survey, we test and confirm the model’s predictions. A one standard deviation increase in leverage reduces the probability of entrepreneurship by 10%–12%.

Keywords: Entrepreneurship; mortgage debt; leverage; risk aversion (search for similar items in EconPapers)
JEL-codes: D14 G11 L26 R21 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2015-10-14
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Mortgage debt and entrepreneurship (2018)
Working Paper: Mortgage debt and entrepreneurship (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0560

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