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Consumption Propensity and Entrepreneurship: Evidence from China

In: Asia-Pacific Contemporary Finance and Development

Author

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  • Mingzhi Hu
  • Jiaqi Liu
  • Xue Wang

Abstract

Individuals who spend a large percentage of their incomes on consumption are perceived to prefer risks. Since entrepreneurs are well recognized as risk-takers, this chapter investigates whether consumption propensity is associated with entrepreneurship. Using micro-level data from Chinese Household Income Project, we find that households with a higher income–consumption ratio on average have a higher preference for risk-seeking, while they have a lower probability to be entrepreneurs. However, households who have higher consumption–income ratio and are in the top 10% of the wealth distribution are more likely to embark on entrepreneurship. In addition, we find that in-system connection (relationship with government-related units) decreases the likelihood of starting new business, while out-system connection (relationship with market units) increases it. These findings suggest that in an imperfect financial market, start-up finance and connections play important roles for entrepreneurship.

Suggested Citation

  • Mingzhi Hu & Jiaqi Liu & Xue Wang, 2019. "Consumption Propensity and Entrepreneurship: Evidence from China," International Symposia in Economic Theory and Econometrics, in: Asia-Pacific Contemporary Finance and Development, volume 26, pages 265-286, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:isetez:s1571-038620190000026013
    DOI: 10.1108/S1571-038620190000026013
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    More about this item

    Keywords

    consumption; credit constraint; connection; entrepreneurship; risk preference; China; D01; D12; J40;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • J40 - Labor and Demographic Economics - - Particular Labor Markets - - - General

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