Household Inequality, Entrepreneurial Dynamism and Corporate Financing

We empirically test hypotheses emanating from recent theory predicting that household wealth inequality may determine entrepreneurial dynamism and corporate financing. We construct two measures of wealth inequality at the US MSA/county level: One based on the distribution of financial rents in 2004 and another one related to the distribution of land holdings in the late Nineteenth century. Our results suggest that in more unequal areas business creation, especially of high-tech ventures, is lower and more likely to be financed via bank and family financing. Wealth inequality seemingly also affects local institutions such as banks, schools, and courts. OR from paper: We empirically test hypotheses emanating from recent theory showing how household wealth inequality may determine corporate financing and entrepreneurial dynamism. We employ a historic measure of wealth inequality, i.e., the distribution of land holdings at the US county level in 1890, and saturate specifications with comprehensive sets of fixed effects and characteristics. The estimated coefficients suggest that county-level wealth inequality robustly increases sole-ownership and the proportion of equity, family and bank financing, yet decreases angel and venture capital financing. Inequality further reduces the likelihood local firms are high-tech and depresses various other measures of entrepreneurial dynamism.