Credit Markets

Home Equity Lending and Small Business: Relaxing Credit Constraints in Texas

William Lastrapes – University of Georgia; Zichong Gu – Georgia State University; Ian Schmutte – University of Georgia

This project uses integrated data to measure the characteristics and dynamics of small and non-employer businesses, and evaluates how well census bureau data products measure small business dynamics and the characteristics of small business owners. Home equity is an important source of capital for many small business ventures, but it is possible that the business activities of these marginal entrepreneurs are not well represented, or well measured in census bureau data. This research evaluates how measurement of small- and non-employer business characteristics and dynamics change with access to home equity. A change in Texas law provides a natural experiment to directly evaluate how well administrative and survey sources measure the characteristics and activity of business that rely on this form of financing. Economic growth may depend on the ability to convert personal property into liquid capital, but testing such a theory is difficult since it is hard to disentangle the effects of the ability to borrow from other institutional and economic variables. The Texas law change provides a unique opportunity to evaluate the effects of changing one feature of the bundle of property rights that attach to home ownership. Specifically, the research design uses the variation in access to home equity financing induced by the law change to identify its influence on the formation and growth of small and young businesses.44 research at the center for economic studies and the research data centers: 2014 u.s. Census bureau

Credit Markets and Real Corporate Policies

Nuri Ersahin – University of Illinois; Rustom Manouchehri Irani – University of Illinois; Hanh Le – University of Illinois at Chicago; Katherine Waldock – New York University

This project investigates the impact of a reliance on credit markets on real corporate behavior—patterns of investment and employment—by conducting a detailed microeconomic analysis using plant-level data. Two topics will be considered: first, real estate asset collateral values and corporate debt capacity; second, the transfer of control rights to creditors (“creditor intervention”) following contractual default in private credit agreements. The project will build new bridge files between census bureau data and external sources, such as data on financial contracts associated with bank lending in the u.s. Syndicated loan market (Thomson Reuters' loan pricing corporation deal scan dataset), as well as data on real estate price indices and local housing supply elasticities. By producing estimates of various firm characteristics, this project will enhance the census bureau’s understanding of economy-wide establishment dynamics (formation, closure, growth, contraction, and performance) and their responsiveness to changes in credit market conditions.