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Entrepreneurship, Windfall Gains and Financial Constraints: Evidence from Germany

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Author Info

  • Dorothea Schaefer

    () (DIW Berlin)

  • Oleksandr Talavera

    () (School of Economics, University of East Anglia)

  • Charlie Weir

    (Aberdeen Business School)

Abstract

We investigate the link between the propensity to become an entrepreneur and exogenous release from financial constraints in Germany. This is defined in terms of the movement from employment to self-employment on receipt of a financial windfall. A theoretical framework developing Evans and Jovanovic (1989) is set up and tested with panel data from German households. The results show that financial constraints do exist given that individuals are more likely to start a personal business after receiving a windfall gain. The value of windfall gains has a significant but non linear effect on the decision to become self employed. The data reveal that differences in ability and income affect the change in employment status. We also report that there is no evidence that becoming self employed involves the anticipation of windfall gains.

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Paper provided by School of Economics, University of East Anglia, Norwich, UK. in its series University of East Anglia AEP Discussion Papers in Economics with number 2010_09.

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Date of creation: 03 May 2010
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Handle: RePEc:uea:aepppr:2010_9

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Keywords: Entrepreneurship; windfall gains; financial constraints;

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References

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  1. Mirjam van Praag & Gerrit de Wit & Niels Bosma, 2003. "Initial Capital Constraints hinder Entrepreneurial Venture Performance," Tinbergen Institute Discussion Papers 03-047/3, Tinbergen Institute, revised 19 Nov 2004.
  2. Douglas Holtz-Eakin & David Joulfaian & Harvey Rosen, 1992. "Entrepreneurial Decisions and Liquidity Constraints," Working Papers 679, Princeton University, Department of Economics, Industrial Relations Section..
  3. de Meza, David & Webb, David C, 1987. "Too Much Investment: A Problem of Asymmetric Information," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 281-92, May.
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Cited by:
  1. Bella Struminskaya, 2011. "Selbständigkeit von Personen mit Migrationshintergrund in Deutschland: Ursachen ethnischer Unternehmung," SOEPpapers 418, DIW Berlin, The German Socio-Economic Panel (SOEP).

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