Addressing Bootstrap Financing Constraints on Family Start-Ups from a Mental Accounting Perspective

Few studies have examined bootstrap financing in family start-ups (FSUs) from a mental accounting perspective. This study enriches the theoretical stream by providing an updated framework for FSUs’ bootstrap financing decisions. Regression models were employed to investigate empirically how capital-constrained entrepreneurs allocate limited financing resources to self-funded businesses. It found that household savings significantly hinder entrepreneurship in high-income and wealthy families. While bank loans were the most important financing resource for FSUs, credit cards were usually used to make stock investments to earn short-term returns. The heterogeneous results suggest that necessity entrepreneurs lack sufficient family savings to support their start-ups; against the rules, they cashed out family assets and misappropriated a portion of bank loans to invest in stocks, but put the returns into their safe account rather than for business growth. In contrast, opportunity entrepreneurs prefer to use family assets to fund their start-ups to create opportunities that will increase their wealth. They have a safe account separate from their FSUs in which to deposit their liquid assets. Such findings demonstrate that FSUs’ financing restraint results from entrepreneurs’ cognition, not only from financial resource limitations but also from reference values for entrepreneurs and investors in other emerging countries to deal with the worldwide financing challenge.