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Does Securitization Support Entrepreneurial Activity?

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  • Babu Baradwaj
  • Michaël Dewally
  • Yingying Shao

Abstract

In this paper, we investigate the impact of loan securitization on entrepreneurial activity in the United States. We first provide evidence that securitization alters the lending strategy for small business by both small and large banks. In particular, we find a positive relation between the banks’ overall credit supply to small businesses and the degree of securitization of their loan assets. We also find three potential channels through which banks’ loan securitization contributes to the development of entrepreneurship. First, direct securitization of small business loans is positively related to increases in entrepreneurial activity. Second, the increased lending supply induced by securitization of non-small business loans also positively relates to business formation. Third, entrepreneurs appear to benefit from an increased ability to borrow from their real-estate holdings facilitated by mortgage loan securitization. Furthermore, we note that this positive influence is only evident during times of positive economic growth and that the relation was not significant in the 2007 to 2009 economic downturn. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Babu Baradwaj & Michaël Dewally & Yingying Shao, 2015. "Does Securitization Support Entrepreneurial Activity?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 47(1), pages 1-25, February.
    • Handle: RePEc:kap:jfsres:v:47:y:2015:i:1:p:1-25
    DOI: 10.1007/s10693-013-0175-1
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    Cited by:

    1. Latino, Carmelo & Pelizzon, Loriana & Riedel, Max, 2023. "How to green the European Auto ABS market? A literature survey," SAFE Working Paper Series 391, Leibniz Institute for Financial Research SAFE.
    2. Shu Meng & Xin Gao & Lianfeng Duan, 2022. "Facing the COVID-19 Pandemic and Developing a Sustainable Entrepreneurial Ecosystem: The Theory and Practice of Innovation and Entrepreneurship Policies in China," IJERPH, MDPI, vol. 19(14), pages 1-20, July.
    3. Deku, Solomon Y. & Kara, Alper & Zhou, Yifan, 2019. "Securitization, bank behaviour and financial stability: A systematic review of the recent empirical literature," International Review of Financial Analysis, Elsevier, vol. 61(C), pages 245-254.

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    More about this item

    Keywords

    Banks; Securitization; Entrepreneurship; Firm formation; G21; L26; O16; M13;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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