Entrepreneurship and Liquidity Constraints: Evidence from Sweden
AbstractDo potential entrepreneurs face liquidity constraints? Or to put it differently, does a person have to be wealthy to start a new business? This question has been discussed in a large literature that has documented a positive relationship between initial wealth and entrepreneurship. However, in a recent paper Hurst and Lusardi (2004) use higher order of polynomials in wealth and find that there is no relationship between household initial wealth and the probability of starting an own business throughout most of the wealth distribution in the United States. In this paper we examine this relationship using similar methods on Swedish data. The data set used is LINDA, a register-based longitudinal data set for Sweden. The relationship is estimated using probit models with different specifications of wealth. However, the result that wealth is not important for new entrepreneurs cannot be replicated. Instead, the main finding of the paper is that the relationship between wealth and transition into entrepreneurship is positive but diminishing for the major part of the wealth distribution. Moreover, the relationship between wealth and entrepreneurship gets stronger as the models get less restricted with respect to wealth. Our result leads us to the conclusion that liquidity constraints do play a significant role when determining transition into entrepreneurship in Sweden.
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Bibliographic InfoPaper provided by Uppsala University, Department of Economics in its series Working Paper Series with number 2005:21.
Length: 29 pages
Date of creation: 10 Sep 2005
Date of revision:
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Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
Web page: http://www.nek.uu.se/
More information through EDIRC
Liquidity constraints; wealth; entrepreneurship; starting capital; business ownership;
Find related papers by JEL classification:
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
- M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-11-12 (All new papers)
- NEP-BEC-2005-11-12 (Business Economics)
- NEP-CFN-2005-11-12 (Corporate Finance)
- NEP-EEC-2005-11-12 (European Economics)
- NEP-ENT-2005-11-12 (Entrepreneurship)
- NEP-INO-2005-11-12 (Innovation)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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