Lean and Hungry or Fat and Content? Entrepreneurs' Wealth and Start-Up Performance
AbstractIf entrepreneurs are liquidity constrained and not able to borrow to operate on an efficient scale, economic theory predicts that entrepreneurs with more personal wealth should do better than those with less wealth. We test this hypothesis using a novel data set covering a large panel of start-ups from Norway. Consistent with liquidity constraints, we find a positive relation between founder prior wealth and start-up size. The relationship between prior wealth and start-up performance, as measured by profitability on assets, increases in the first three wealth quartiles. In the top wealth quartile, however, profitability drops sharply in wealth. Our findings are consistent with a luxury good interpretation of entrepreneurship and that higher wealth may induce a less alert or a less dedicated management. We conclude that an abundance of resources might do more harm than good for start-ups.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by INFORMS in its journal Management Science.
Volume (Year): 56 (2010)
Issue (Month): 8 (August)
entrepreneurial motivation; entrepreneurship; financial constraints; liquidity; organizational slack; start-ups; survival; profitability;
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Erik Fjærli & Diana Iancu, 2012. "The financing of young firms. How persistent are borrowing constraints?," Discussion Papers 707, Research Department of Statistics Norway.
- Becker, Sascha & Hvide, Hans V, 2013.
"Do entrepreneurs matter?,"
CAGE Online Working Paper Series
109, Competitive Advantage in the Global Economy (CAGE).
- Sascha O. Becker & Hans K. Hvide, 2013. "Do Entrepreneurs Matter?," CESifo Working Paper Series 4088, CESifo Group Munich.
- Becker, Sascha O. & Hvide, Hans K., 2013. "Do Entrepreneurs Matter?," IZA Discussion Papers 7146, Institute for the Study of Labor (IZA).
- Becker, Sascha O. & Hvide, Hans K., 2013. "Do entrepreneurs matter?," The Warwick Economics Research Paper Series (TWERPS) 1002, University of Warwick, Department of Economics.
- Becker, Sascha O. & Hvide, Hans K, 2013. "Do entrepreneurs matter?," CEPR Discussion Papers 9295, C.E.P.R. Discussion Papers.
- Andersen, Steffen & Nielsen, Kasper Meisner, 2012.
"Ability or Finances as Constraints on Entrepreneurship? Evidence from Survival Rates in a Natural Experiment,"
03-2012, Copenhagen Business School, Department of Economics.
- Steffen Andersen & Kasper Meisner Nielsen, 2012. "Ability or Finances as Constraints on Entrepreneurship? Evidence from Survival Rates in a Natural Experiment," Review of Financial Studies, Society for Financial Studies, vol. 25(12), pages 3684-3710.
- Hvide, Hans K. & Panos, Georgios A., 2013.
"Risk Tolerance and Entrepreneurship,"
IZA Discussion Papers
7206, Institute for the Study of Labor (IZA).
- Alex Coad & Julian Frankish & Paul Nightingale & Richard G. Roberts & David J. Storey, 2012. "Business Experience and Start-up Size: Buying More Lottery Tickets Next Time Around?," SPRU Working Paper Series 203, SPRU - Science and Technology Policy Research, University of Sussex.
- Balasubramanyan, Lakshmi & Coulson, Edward, 2013. "Do house prices impact business starts?," Journal of Housing Economics, Elsevier, vol. 22(1), pages 36-44.
- repec:cge:warwcg:108 is not listed on IDEAS
- Dahl, Michael S. & van Praag, Mirjam & Thompson, Peter, 2014.
IZA Discussion Papers
8186, Institute for the Study of Labor (IZA).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.