The Significance of Household Inequality for Entrepreneurial Dynamism and Corporate Financing

We empirically test hypotheses emanating from recent theory predicting that household wealth inequality may determine entrepreneurial dynamism and corporate financing. We construct two measures of wealth inequality at the US MSA/county level: One based on the distribution of financial rents in 2004 and another one related to the distribution of land holdings in the late Nineteenth century. Our results suggest that in more unequal areas business creation, especially of high-tech ventures. In more unequal areas young firms have a simpler corporate form and they are more likely to be financed via bank and family financing. Wealth inequality seems to affect entrepreneurial choices and capital structure both via demand and supply channels.