Short Term Credit Costs and U.S. Entrepreneurship

Jorge Guzman and Yupeng Liu

No ap978, SocArXiv from Center for Open Science

Abstract: We estimate how variation in credit costs shapes U.S. entrepreneurship. Using a novel index counting the number and quality of daily business registrations from 1988 to 2014 and identification through heteroskedasticity, we show that small changes in the U.S. risk-free rate (3-month Treasury Bill) lead to a negative and heterogeneous effect on firm founding rates. A one percentage point increase is associated with a drop of 6.3% in the number of new firms founded seven days later, and a drop of 3.4% in the quality-adjusted quantity. The rate of firm formation gets back to baseline after six weeks, and there is no corresponding overcompensation, suggesting that the loss is permanent.

Date: 2019-11-27
New Economics Papers: this item is included in nep-ent
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Persistent link: https://EconPapers.repec.org/RePEc:osf:socarx:ap978

DOI: 10.31219/osf.io/ap978

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