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Home equity and private firm financing

Alternativ tittel: Betydningen av boligformue for finansiering av små- og mellomstore bedrifter.

Tildelt: kr 0,98 mill.





2022 - 2023

Midlene er mottatt fra:



Vi studerer små- og mellomstore bedrifter med opp til tre eiere for å analysere om eierne øker belåningen på huset sitt for å finansiere ny egenkapital i bedriften. Vi finner at dette skjer i vesentlig grad, og dessuten at bedriften etterpå opplever viktige og varige driftsmessige forbedringer. Slik tilførsel av kapital gjør dessuten at bedriftene overlever lengre. Når en eier opplever en betydelig økt verdi av sin bolig og boligen er relativt mindre belånt, er sammenhengene sterkere. Vi finner også at eiere som reiser kapital gjennom bruk av sin bolig også i større grad etablerer nye bedrifter i samme bransje som de har erfaring fra, og generelt bidrar til å styrke regionale gründeraktiviteter. Analysene er gjort ved bruk av unike data fra Skatteetaten og vi er svært takknemlige for tilgang til disse. Våre funn gir viktig ny innsikt i hvordan eiere av etablerte, ikke bare nystartede, små og mellomstore bedrifter finansierer bedriftene sine. Funnene støtter at det trolig vil være positivt med noe mer liberal utlånspolitikk i slike tilfeller.

The research project outcome is expected to be new insight on how home equity mitigates the financial constraints of owners of small and medium sized enterprises. We have demonstrated a link between shareholders in SMEs home equity and their corporate financing behavior, and the consequences on the company of being funded by home equity financing for the owner. We aim to identify causality by using regional and local house price changes, as well as studying the impact of owners' leverage, how new capital impact the firm ex post, and the impact on firm survival. Our contributions are connected to existing firms, their owners and financing, compared to a larger literatur on how home equity is important for startups. However, we also find that owners who extract home equity are significantly more likely to start a new company in the same industry as where they already are invested, and less in other industries. Finally, we also find the same results (for SME financing) at a regional level. Our results are presented in a working paper which is enclosed. We will continue to work on this, with the aim to both present at conferences and eventually get it published at a quality journal: -Current dialogue with the Department of Fiance at KU Leuven to hold a research seminar there early next year. -Submission to the European Finance Association conference by 1 February 2024 -Submission to other relevant European conferences during 2024 -Submission to journal before end 2024 We have written a draft popular newspaper chronicle in Norwegian to highlight the main findings from our research. We aim to impact policies through our reporting via two channels: -The awareness of the need of SME companies for financing and the amounts that do not get financed in Norway. -The subsequent consequences of using personal financing of SMEs and whether such investments are rational and should warrant more regular funding.

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.