Collateral and Small Firm Labor
55 Pages Posted: 29 Jun 2016
Date Written: October 8, 2015
Abstract
Since small firms are dependent on collateral to access financing, balance sheet shocks can impact employment when revenues are insufficient. Using UK firm level data on real estate holdings and cross-sectional differences in house price growth we find that the average small business extracts $0.20 out of every dollar increase in their real estate value. Due to collateral requirements for even short-term loans, small firms increase not only investment ($0.08) but also employment ($0.03). The decline of the housing sector explains 10% of 2007-2009 unemployment.
Keywords: Small Firms, Collateral, Employment
JEL Classification: G31, R33
Suggested Citation: Suggested Citation