The impact of consumer credit access on self-employment and entrepreneurship

Kyle Herkenhoff, Gordon Phillips and Ethan Cohen-Cole

Journal of Financial Economics, 2021, vol. 141, issue 1, 345-371

Abstract: We examine how consumer credit affects entrepreneurship by linking three million earnings and pass-through tax records to credit reports. In the cross-section, we show that self-employment without employees and employer firm ownership increase monotonically with credit limits and credit scores. We then isolate individuals who have had discrete increases in credit limits after the exogenous removal of bankruptcy flags to measure the effects of personal credit on entrepreneurship. Following bankruptcy flag removal, individuals are more likely to start a new employer business and borrow extensively. Those who own businesses with employees borrow $40,000 more after bankruptcy flag removal, a 33% gain relative to the sample average.

Keywords: Entrepreneurship; Start-ups; Credit access; Personal bankruptcy (search for similar items in EconPapers)
JEL-codes: D13 G32 G33 M13 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:141:y:2021:i:1:p:345-371

DOI: 10.1016/j.jfineco.2021.03.004

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