Household wealth and entrepreneurship: is there a link?
AbstractIn the absence of any correlation between wealth and entrepreneurial talent, initial net wealth should have an explanatory power in the decision to become an entrepreneur only for households that are financially constrained; further, its importance should decrease with wealth. I test these theoretical predictions for the Italian case, using the Survey of Household Income and Wealth. The evidence is that household's initial wealth is indeed important in the decision to become an entrepreneur and its effect is lower for the richest households. When net wealth is instrumented, the results are similar. Furthermore, the effect of net wealth is stronger when legal enforcement of the loan contract is weaker, as also predicted by the model. Finally, conditional on becoming entrepreneurs, initial household wealth does not significantly affect the size of the business. In summary, it seems that imperfections in capital markets can induce people to accumulate assets in order to facilitate the decision to become entrepreneurs.
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Bibliographic InfoPaper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 719.
Date of creation: Jun 2009
Date of revision:
entrepreneurship; start-up businesses; household wealth;
Other versions of this item:
- Silvia Magri, 2006. "Household wealth and entrepreneurship: is there a link?," 2006 Meeting Papers 180, Society for Economic Dynamics.
- D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-07-28 (All new papers)
- NEP-EEC-2009-07-28 (European Economics)
- NEP-ENT-2009-07-28 (Entrepreneurship)
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- Silvia Magri, 2009. "The financing of small entrepreneurs in Italy," Annals of Finance, Springer, vol. 5(3), pages 397-419, June.
- Filipe Silva & Carlos Carreira, 2009.
"No Deep Pockets: Some stylized results on firms' financial constraints,"
GEMF Working Papers
2009-06, GEMF - Faculdade de Economia, Universidade de Coimbra.
- Carlos Carreira & Filipe Silva, 2010. "No Deep Pockets: Some Stylized Empirical Results On Firms' Financial Constraints," Journal of Economic Surveys, Wiley Blackwell, vol. 24(4), pages 731-753, 09.
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