Unveiling the impact of housing debt on entrepreneurship: Evidence from China

Despite extensive research on the impact of various factors on entrepreneurship, the role of housing debt remains underexplored, particularly in emerging economies. Using data from the China Household Finance Survey (CHFS), this study identifies a significant negative effect of housing debt on entrepreneurship after controlling for a comprehensive set of individual and household characteristics, as well as regional and year fixed effects. To delve deeper into the underlying mechanisms, we present direct evidence that housing debt amplifies risk aversion while imposing capital and credit constraints. Furthermore, we offer indirect evidence suggesting that housing debt exerts a stronger negative impact on employer entrepreneurship than on self-employment entrepreneurship, and a more pronounced negative effect on active entrepreneurship compared to passive entrepreneurship. Overall, this study addresses gaps in research on the impact of housing debt on entrepreneurship and provides insights into the underlying mechanisms by revealing how housing debt amplifies risk aversion, imposes capital and credit constraints, and disproportionately affects employer entrepreneurship over self-employment entrepreneurship, as well as active entrepreneurship over passive entrepreneurship.