Annika Bacher (BI Oslo)
Regulating Entrepreneurship: The Case of Capital Requirements
Discussant: Annika Bacher (BI Oslo).
Abstract: Governments have a long history of imposing minimum equity requirements on new corporations. While opponents argue that capital requirements pose a detrimental barrier to entry, proponents maintain that they protect stakeholders from financially unviable entrepreneurship. Despite this controversy, there is little evidence to inform policymakers. We use a Norwegian reform and comprehensive data on entrepreneurs and their firms to study this quantity-quality trade-off. Reducing the capital requirement by 70% nearly doubled entrepreneurial entry, without affecting survival rates, profitability, productivity, or financial leverage. We further find no evidence that new entrepreneurs differ in terms of ex-ante income, liquidity, or ability measures. Our findings thus indicate that capital requirements restrict entrepreneurship without screening on quality, which has policy implications for the many countries debating these requirements. More broadly, our model and data indicate that returns-to-scale heterogeneity, rather than liquidity or productivity differences, is critical in modeling entry responses to regulation.
Chair: Tomás Budí.
Contact: Tomás Budí.
Location: Meeting room DG Economics.
Timetable: 2026.03.11 (12:00-13:00).