Regulating Entrepreneurship: The Case of Capital Requirements

Annika Bacher, Andreas Fagereng, Marius A. K. Ring and Ella Getz Wold

No 35780, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Governments have long imposed minimum equity requirements on new corporations. Opponents view them as barriers to entry while proponents argue that they protect stakeholders from financially unviable businesses. We study this quantity-quality trade-off using a Norwegian reform and comprehensive data linking entrepreneurs to their firms. A 70% reduction in required capital nearly doubled entrepreneurial entry, with no deterioration in survival, profitability, productivity, or interest-bearing leverage and no differences in founders’ ex-ante income, liquidity, or ability. These results suggest capital requirements restrict entrepreneurship without screening on quality or liquidity. Rather, we highlight returns-to-scale heterogeneity as an important determinant of the observed entry response.

JEL-codes: G38 G50 H10 H32 J24 (search for similar items in EconPapers)
Date: 2026-09
Note: CF PE PR
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Working Paper: Regulating Entrepreneurship: The Case of Capital Requirements (2025)
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