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Do credit constraints matter more for college dropout entrepreneurs?

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  • Arndt Werner

Abstract

The purpose of this study is to shed some light on the relationship between the educational background of entrepreneurs and their ability to get financial resources from banks. Start-ups and their potential lenders are faced with severe problems of asymmetric information regarding the evaluation of entrepreneurial capabilities due to the lack of a production history and reputation. To reduce the informational gap, banks could be expected to use college graduation experience as an observable signal for the underlying quality of the new firm when deciding to grant a credit to a founder. We empirically test our hypothesis, using a dataset of 189 German start-ups. Our hypothesis is borne out by the data. Under the control of various individual characteristics, we find college dropouts have more difficulties to obtain credit in the start-up phase than founders who did not drop out of college.

Suggested Citation

  • Arndt Werner, 2011. "Do credit constraints matter more for college dropout entrepreneurs?," International Journal of Entrepreneurship and Innovation Management, Inderscience Enterprises Ltd, vol. 14(2/3), pages 190-205.
    • Handle: RePEc:ids:ijeima:v:14:y:2011:i:2/3:p:190-205
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    Cited by:

    1. Luis Alejandro Lopez-Agudo & Oscar David Marcenaro Gutierrez & Helena Ferreira-Marques, 2016. "Gender, institutions and educational achievement: a cross country comparison," Investigaciones de Economía de la Educación volume 11, in: José Manuel Cordero Ferrera & Rosa Simancas Rodríguez (ed.), Investigaciones de Economía de la Educación 11, edition 1, volume 11, chapter 20, pages 383-400, Asociación de Economía de la Educación.
    2. Guido Buenstorf & Kristian Nielsen & Bram Timmermans, 2017. "Steve Jobs or No Jobs? Entrepreneurial activity and performance among Danish college dropouts and graduates," Small Business Economics, Springer, vol. 48(1), pages 179-197, January.
    3. Valentina Diana Rusu & Angela Roman, 2017. "Entrepreneurial Activity in the EU: An Empirical Evaluation of Its Determinants," Sustainability, MDPI, vol. 9(10), pages 1-16, September.

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