Ability or Finances as Constraints to Entrepreneurship? Evidence from Survival Rates in a Natural Experiment

Publikation: Working paperForskning

Abstrakt

This study exploits a natural experiment to investigate why financial constraints appear to limit firm formation. Exogenous variation in wealth results from unexpected inheritance due to sudden death and allows us to identify 304 constrained entrepreneurs, who start a business after receiving windfall wealth. We compare the performance of these ventures to that of a matched sample of individuals who form businesses at the same time to test whether financial barriers to entrepreneurship are caused by market failure or low entrepreneurial ability. We find that constrained entrepreneurs’ ventures have significantly lower survival rates and are less profitable than are those of unconstrained entrepreneurs. Collectively, these results suggest that constrained entrepreneurs have lower entrepreneurial ability and that capital markets work sufficiently well in funding individuals who have worthy entrepreneurial projects.
OriginalsprogEngelsk
Udgivelses stedColumbus
UdgiverOhio State University Press
Antal sider41
StatusUdgivet - 2011

Emneord

  • Entrepreneurship
  • Ability
  • Liquidity
  • Constraints
  • Sudden Death
  • Inheritance

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