Does Securitization Support Entrepreneurial Activity?

Babu Baradwaj (), Michaël Dewally () and Yingying Shao ()

Journal of Financial Services Research, 2015, vol. 47, issue 1, 25 pages

Abstract: In this paper, we investigate the impact of loan securitization on entrepreneurial activity in the United States. We first provide evidence that securitization alters the lending strategy for small business by both small and large banks. In particular, we find a positive relation between the banks’ overall credit supply to small businesses and the degree of securitization of their loan assets. We also find three potential channels through which banks’ loan securitization contributes to the development of entrepreneurship. First, direct securitization of small business loans is positively related to increases in entrepreneurial activity. Second, the increased lending supply induced by securitization of non-small business loans also positively relates to business formation. Third, entrepreneurs appear to benefit from an increased ability to borrow from their real-estate holdings facilitated by mortgage loan securitization. Furthermore, we note that this positive influence is only evident during times of positive economic growth and that the relation was not significant in the 2007 to 2009 economic downturn. Copyright Springer Science+Business Media New York 2015

Keywords: Banks; Securitization; Entrepreneurship; Firm formation; G21; L26; O16; M13 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s10693-013-0175-1

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