Does credit expansion encourage small businesses to incorporate? Evidence from US bank deregulations

Abstract

We use state-level bank deregulations to study the impact of changes in credit on incorporation among unincorporated self-employed business owners. Exploiting the variation in the staggered timing of banking deregulations and using the recent advances in difference-in-differences (DiD) estimation techniques, we find that banking reforms considerably increased unincorporated businesses to incorporate. Further, the effects of reforms are different across groups based on gender, race, education, and age. We find stronger effects on incorporated business creation among female, less-educated, and younger unincorporated business owners. Our results are robust to the choice of controls, samples, and estimation approaches.