From Demolition to Business: How Compensation Method Influences New Ventures

In this research, I investigate the relationship between different types of housing demolition compensation and entrepreneurship, utilizing data from the China Household Finance Survey. Employing economic analysis with a two-way fixed effects model, I find that among households that have experienced demolition, those receiving cash compensation are more likely to engage in entrepreneurial activities compared to those receiving other forms of compensation. This effect operates through a mechanism in which cash compensation alleviates liquidity constraints. The findings hold true for both established and nascent households and are particularly pronounced in urban areas and in the eastern region of the People’s Republic of China. This study contributes to the developmental literature on demolition and entrepreneurship by highlighting the positive aspects and remedial potential of compensation. It offers a detailed examination of compensation types and links liquidity theory to the context of housing demolition.