Review of Finance Vol. 25 No. 5 2021
Stress Tests, Entrepreneurship, and Innovation
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.
- DOI
- 10.1093/rof/rfab007
- Volume
- 25
- Issue
- 5
- Pages
- 1609-1637
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref