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Initial Capital Constraints Hinder Entrepreneurial Venture Performance: An empirical analysis

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  • Mirjam van Praag

Abstract

A novel method is applied to evaluate the effect of capital constraints on entrepreneurial performance on a panel of 1,000 Dutch entrepreneurs. We find that initial capital constraints hinder entrepreneurs in their performance, even when we control for various human capital and other factors that might affect both performance and credit scoring outcomes. We use a direct individual indicator variable for initial capital constraints. Previous research with the same objective used indirect indicators of wealth, inheritances or windfall gains, where it remains unknown whether the entrepreneur indeed suffered from capital constraints. This drawback is not attached to our (neither perfect) approach so that policy implications will become more evident.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 887.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_887

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Keywords: entrepreneurship; small business founders; success; venture performance; wealth/capital/borrowing constraint;

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  1. De Wit, G. & Winden, F., 1989. "An Empirical Analysis Of Self-Employment In The Netherlands," Papers, NEUHUYS - RESEARCH INSTITUTE FOR SMALL AND MEDIUM 89.02, NEUHUYS - RESEARCH INSTITUTE FOR SMALL AND MEDIUM.
  2. Holtz-Eakin, Douglas & Joulfaian, David & Rosen, Harvey S, 1994. "Sticking It Out: Entrepreneurial Survival and Liquidity Constraints," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 102(1), pages 53-75, February.
  3. Steven M. Fazzari & R. Glenn Hubbard & BRUCE C. PETERSEN, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
  4. Evans, David S & Leighton, Linda S, 1989. "Some Empirical Aspects of Entrepreneurship," American Economic Review, American Economic Association, American Economic Association, vol. 79(3), pages 519-35, June.
  5. Bates, Timothy, 1990. "Entrepreneur Human Capital Inputs and Small Business Longevity," The Review of Economics and Statistics, MIT Press, vol. 72(4), pages 551-59, November.
  6. Lindh, Thomas & Ohlsson, Henry, 1996. "Self-Employment and Windfall Gains: Evidence from the Swedish Lottery," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 106(439), pages 1515-26, November.
  7. Douglas Holtz-Eakin & David Joulfaian & Harvey S. Rosen, 1994. "Entrepreneurial Decisions and Liquidity Constraints," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 334-347, Summer.
  8. Blanchflower, D.G. & Oswald, A., 1991. "What Makes an Entrepreneur?," Economics Series Working Papers 99125, University of Oxford, Department of Economics.
  9. Cooper, Arnold C. & Gimeno-Gascon, F. Javier & Woo, Carolyn Y., 1994. "Initial human and financial capital as predictors of new venture performance," Journal of Business Venturing, Elsevier, vol. 9(5), pages 371-395, September.
  10. de Meza, David & Webb, David, 2000. "Does credit rationing imply insufficient lending?," Journal of Public Economics, Elsevier, Elsevier, vol. 78(3), pages 215-234, November.
  11. Robin Boadway & Nicolas Marceau & Maurice Marchand & Marianne Vigneault, 1998. "Entrepreneurship, Asymmetric Information and Unemployment," Cahiers de recherche CREFE / CREFE Working Papers, CREFE, Université du Québec à Montréal 57, CREFE, Université du Québec à Montréal.
  12. Dunn, Thomas & Holtz-Eakin, Douglas, 2000. "Financial Capital, Human Capital, and the Transition to Self-Employment: Evidence from Intergenerational Links," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 18(2), pages 282-305, April.
  13. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 97(4), pages 808-27, August.
  14. Taylor, Mark P, 1999. "Survival of the Fittest? An Analysis of Self-Employment Duration in Britain," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 109(454), pages C140-55, March.
  15. Barton H. Hamilton, 2000. "Does Entrepreneurship Pay? An Empirical Analysis of the Returns to Self-Employment," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 108(3), pages 604-631, June.
  16. de Meza, David & Southey, Clive, 1996. "The Borrower's Curse: Optimism, Finance and Entrepreneurship," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 106(435), pages 375-86, March.
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Cited by:
  1. Uschi Backes-Gellner & Arndt Werner, 2007. "Entrepreneurial Signaling via Education: A Success Factor in Innovative Start-Ups," Small Business Economics, Springer, Springer, vol. 29(1), pages 173-190, June.
  2. Werner, Arndt, 2008. "Do Credit Constraints Matter more for College Dropout Entrepreneurs?," MPRA Paper 11867, University Library of Munich, Germany.

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