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Home equity and private firm financing

Alternative title: Betydningen av boligformue for finansiering av små- og mellomstore bedrifter.

Awarded: NOK 1.1 mill.

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Project Period:

2022 - 2023

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The value of the owners' homes helps them to finance their firms, and in our preliminary results, we find that owners actually borrow against collateral in their homes to get capital to inject into their firms. In this project, we will investigate the importance of this source of financing, and how it varies across different types of firms, how wealthy the owners are, and a range of other characteristics. We also study whether these firms are more or less likely to survive in the long run. Our research uses data from the Norwegian Tax Authority combined with financial accounts for the companies. This is an excellent setting to study how owners of small- and medium sized firms finance their firms.


We attempt to show how home equity alleviates the financial constraints for existing firms. Our preliminary results show a positive correlation between home equity extraction of firm owners and new equity injection behavior into their own (private) firms. We exploit the cross-sectional heterogeneity among private firms and their owners to understand what drives the new equity injection behavior. We expect firms that exhibits weaker financial statements to face more difficulties in borrowing from external creditors, therefore, relies more on owners’ equity injections. We also analyse the owners’ personal characteristics, in particular their wealth. Our final set of tests focus on firm performance and survival in the post injection period. We leverage comprehensive data from the Norwegian tax authority. The data-set includes owner’s home ownership, public and private equity market holdings, board roles, etc.. It also documents corporate and financial information of all Norwegian firms over time. We map the individual owner’s data to their firms to directly track the fund flow from an individual to their firm. Overall, is home equity financing a sound investment decision for individual owners or not? Existing studies focus on the creation, rather than the follow-up on post-entry growth and long-run performance of private firms. We follow changes in private firms’ ownership and performance. Hence, our setting expands the existing research to a broader scope, the general private firms. We also investigate how owner’s personal financing behavior affects corporate performance, and why owners want to increase ownership stake and in which firms. It also allows us to evaluate whether it is a sound investment decision by studying the ultimate consequences of new equity injection to the firms. In the latter we also use owners' divorce to study the effects of changes in risk attitudes. Overall, we want to better understand how home equity supports firm financing.

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