The Impact of Household Wealth Shocks on Entrepreneurial Activity: Evidence from a Quasi-Natural Experiment of Housing Demolition

Against the backdrop of rapid urbanization and large-scale wealth redistribution in China, housing demolition not only significantly improves the living standards of affected households but also profoundly shapes their employment and entrepreneurial choices. Using household-level microdata from the China Family Panel Studies (CFPS) for 2014–2020, this study treats housing demolition as an exogenous wealth shock and examines its effect on household entrepreneurship. We implement a staggered difference-in-differences design, complemented by event-study analyses and PSM-DID. The results show that demolition-related windfalls significantly reduce entrepreneurial entry, with the effect concentrated among urban and higher-income households; by contrast, rural and lower-income households exhibit no statistically meaningful response. These findings are robust to a series of checks, including alternative specifications, redefined comparison groups, excluding households that started businesses prior to demolition, and additional exercises to net out institutional and cultural confounders. Mechanism tests demonstrate that demolition curbs entrepreneurial willingness and entry behavior by reducing risk preference and increasing leisure preference. This research provides key empirical evidence from China for understanding how large-scale wealth shocks affect entrepreneurial vitality by altering the intrinsic preferences of micro-agents.