Abstract This article shows that postcrisis stress tests have negative effects on entrepreneurship and innovation at young firms. Exploiting unique data on business-related home equity loans in Home Mortgage Disclosure Act, I show that stress-tested banks strongly cut small business loans secured by home equity, an important source of financing for entrepreneurs. Lower credit supply leads to a relative decline in entrepreneurship in counties with higher exposure to stress-tested banks. The decline is stronger in sectors with a higher share of young firms using home equity financing, that is, in which the reduction in credit hits hardest. More-exposed counties also see a decline in young firms’ patent applications as well as labor productivity, reflecting young firms’ disproportionate contribution to growth.

Abstract Over fifty countries have introduced regulatory sandboxes to foster financial innovation. This article conducts the first evaluation of their ability to improve fintechs’ access to capital and attendant real effects. Exploiting the staggered introduction of the UK sandbox, we establish that firms entering the sandbox see an increase of 15% in capital raised post-entry. Their probability of raising capital increases by 50%. Sandbox entry also has a significant positive effect on survival rates and patenting. Investigating the mechanism, we present evidence consistent with lower asymmetric information and regulatory costs.