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

Steffen Andersen; Kasper Meisner Nielsen

doi:10.1093/rfs/hhs107

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

Steffen Andersen, Kasper Meisner Nielsen

Department of Economics

Hong Kong University of Science and Technology

Research output: Contribution to journal › Journal article › Research › peer-review

Abstract

We use a natural experiment in Denmark to test the hypothesis that aspiring entrepreneurs face financial constraints because of low entrepreneurial quality. We identify 304 constrained entrepreneurs who start a business after receiving windfall wealth and examine the performance of these marginal entrepreneurs. We find that constrained entrepreneurs have significantly lower survival rates and lower profits when compared with a matched sample of unconstrained entrepreneurs. These results are consistent with the hypothesis that the marginal entrepreneur is of low quality.

Original language	English
Journal	Review of Financial Studies
Volume	25
Issue number	12
Pages (from-to)	3684-3710
ISSN	0893-9454
DOIs	https://doi.org/10.1093/rfs/hhs107
Publication status	Published - 2012

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title = "Ability or Finances as Constraints on Entrepreneurship?: Evidence from Survival Rates in a Natural Experiment ",

abstract = "We use a natural experiment in Denmark to test the hypothesis that aspiring entrepreneurs face financial constraints because of low entrepreneurial quality. We identify 304 constrained entrepreneurs who start a business after receiving windfall wealth and examine the performance of these marginal entrepreneurs. We find that constrained entrepreneurs have significantly lower survival rates and lower profits when compared with a matched sample of unconstrained entrepreneurs. These results are consistent with the hypothesis that the marginal entrepreneur is of low quality.",

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AB - We use a natural experiment in Denmark to test the hypothesis that aspiring entrepreneurs face financial constraints because of low entrepreneurial quality. We identify 304 constrained entrepreneurs who start a business after receiving windfall wealth and examine the performance of these marginal entrepreneurs. We find that constrained entrepreneurs have significantly lower survival rates and lower profits when compared with a matched sample of unconstrained entrepreneurs. These results are consistent with the hypothesis that the marginal entrepreneur is of low quality.

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