IDEAS home Printed from https://ideas.repec.org/a/kap/sbusec/v15y2000i3p223-232.html
   My bibliography  Save this article

Saving to Overcome Borrowing Constraints: Implications for Small Business Entry and Exit

Author

Listed:
  • Simon Parker

Abstract

This paper shows how a dynamic analysis of entrepreneurial choice, in which inter-temporal savings plans can be adjusted to build up capital, allows agents to overcome borrowing constraints. This casts fresh doubt on the notion that borrowing constraints deter entrepreneurial entry in the long run. Impatient agents are shown to voluntarily remain constrained indefinitely, whereas patient agents become entrepreneurs. The model also explains temporary and permanent closures of viable businesses. The model's predictions are consistent with evidence of greater savings behaviour by entrepreneurs. Copyright Kluwer Academic Publishers 2000

Suggested Citation

  • Simon Parker, 2000. "Saving to Overcome Borrowing Constraints: Implications for Small Business Entry and Exit," Small Business Economics, Springer, vol. 15(3), pages 223-232, November.
  • Handle: RePEc:kap:sbusec:v:15:y:2000:i:3:p:223-232
    DOI: 10.1023/A:1008161529526
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1023/A:1008161529526
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: https://libkey.io/10.1023/A:1008161529526?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Parker, Simon C, 1996. "A Time Series Model of Self-Employment under Uncertainty," Economica, London School of Economics and Political Science, vol. 63(251), pages 459-475, August.
    2. de Meza, David & Southey, Clive, 1996. "The Borrower's Curse: Optimism, Finance and Entrepreneurship," Economic Journal, Royal Economic Society, vol. 106(435), pages 375-386, March.
    3. Cressy, Robert, 2000. "Credit rationing or entrepreneurial risk aversion? An alternative explanation for the Evans and Jovanovic finding," Economics Letters, Elsevier, vol. 66(2), pages 235-240, February.
    4. Xu, Bin, 1998. "A reestimation of the Evans-Jovanovic entrepreneurial choice model," Economics Letters, Elsevier, vol. 58(1), pages 91-95, January.
    5. Cressy, Robert, 1996. "Are Business Startups Debt-Rationed?," Economic Journal, Royal Economic Society, vol. 106(438), pages 1253-1270, September.
    6. Ayal Kimhi & Noga Nachlieli, 2001. "Intergenerational Succession on Israeli Family Farms," Journal of Agricultural Economics, Wiley Blackwell, vol. 52(2), pages 42-58, May.
    7. Vincenzo Quadrini, 1999. "The Importance Of Entrepreneurship For Wealth Concentration And Mobility," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 45(1), pages 1-19, March.
    8. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-670, May.
    9. Artle, Roland & Varaiya, Pravin, 1978. "Life cycle consumption and homeownership," Journal of Economic Theory, Elsevier, vol. 18(1), pages 38-58, June.
    10. David de Meza & David C. Webb, 1987. "Too Much Investment: A Problem of Asymmetric Information," The Quarterly Journal of Economics, Oxford University Press, vol. 102(2), pages 281-292.
    11. Jaffee, Dwight & Stiglitz, Joseph, 1990. "Credit rationing," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 2, chapter 16, pages 837-888, Elsevier.
    12. Robson, Martin T, 1997. "The Relative Earnings from Self and Paid Employment: A Time-Series Analysis for the UK," Scottish Journal of Political Economy, Scottish Economic Society, vol. 44(5), pages 502-518, November.
    13. Schworm, William E, 1980. "Financial Constraints and Capital Accumulation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(3), pages 643-660, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. de Meza, David & Webb, David C., 2003. "The near impossibility of credit rationing," LSE Research Online Documents on Economics 24858, London School of Economics and Political Science, LSE Library.
    2. Francesco Quatraro & Marco Vivarelli, 2015. "Drivers of Entrepreneurship and Post-entry Performance of Newborn Firms in Developing Countries," The World Bank Research Observer, World Bank Group, vol. 30(2), pages 277-305.
    3. Kunal Sen, "undated". "Towards Inclusive Financial Development for Achieving the MDGs in Asia and the Pacific," MPDD Working Paper Series WP/10/07, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
    4. Parker, Simon C., 2007. "Entrepreneurial learning and the existence of credit markets," Journal of Economic Behavior & Organization, Elsevier, vol. 62(1), pages 37-46, January.
    5. Enrico Santarelli & Marco Vivarelli, 2007. "Entrepreneurship and the process of firms’ entry, survival and growth," Industrial and Corporate Change, Oxford University Press, vol. 16(3), pages 455-488, June.
    6. McCain, Roger, 2016. "Small Business and Liquidity Constraint," School of Economics Working Paper Series 2016-3, LeBow College of Business, Drexel University.
    7. Gabriel, Cle-Anne, 2016. "What is challenging renewable energy entrepreneurs in developing countries?," Renewable and Sustainable Energy Reviews, Elsevier, vol. 64(C), pages 362-371.
    8. Marco Vivarelli, 2012. "Entrepreneurship and Post-Entry Performance: the Microeconomic Evidence," DISCE - Quaderni del Dipartimento di Scienze Economiche e Sociali dises1286, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    9. M. Nesij Huvaj, 2020. "A Co-opetition View of the Entrepreneur–Investor Relationship: Modelling Entrepreneurial Exit Pathways," Journal of Entrepreneurship and Innovation in Emerging Economies, Entrepreneurship Development Institute of India, vol. 29(2), pages 365-394, September.
    10. Marco Vivarelli, 2013. "Is entrepreneurship necessarily good? Microeconomic evidence from developed and developing countries," Industrial and Corporate Change, Oxford University Press, vol. 22(6), pages 1453-1495, December.
    11. Vivarelli, Marco, 2012. "Drivers of entrepreneurship and post-entry performance : microeconomic evidence from advanced and developing countries," Policy Research Working Paper Series 6245, The World Bank.
    12. Vivarelli, Marco, 2012. "Entrepreneurship in Advanced and Developing Countries: A Microeconomic Perspective," IZA Discussion Papers 6513, Institute of Labor Economics (IZA).
    13. Simon C. Parker & Yacine Belghitar, 2006. "What Happens to Nascent Entrepreneurs? An Econometric Analysis of the PSED," Small Business Economics, Springer, vol. 27(1), pages 81-101, August.
    14. Quatraro, Francesco & Vivarelli, Marco, 2013. "Entrepreneurship In A Developing Country Context," Department of Economics and Statistics Cognetti de Martiis LEI & BRICK - Laboratory of Economics of Innovation "Franco Momigliano", Bureau of Research in Innovation, Complexity and Knowledge, Collegio 201314, University of Turin.
    15. David C Webb & David De Meza, 2001. "Saving Eliminates Credit Rationing," FMG Discussion Papers dp391, Financial Markets Group.
    16. Takanori Adachi & Takanori Hisada, 2017. "Gender differences in entrepreneurship and intrapreneurship: an empirical analysis," Small Business Economics, Springer, vol. 48(3), pages 447-486, March.
    17. Preeya S. Mohan, 2019. "Necessity Versus Opportunity Motivation: Nascent Firm Performance In Caribbean Small Island Developing States," Journal of Developmental Entrepreneurship (JDE), World Scientific Publishing Co. Pte. Ltd., vol. 24(04), pages 1-22, December.
    18. Croson, David C. & Minniti, Maria, 2012. "Slipping the surly bonds: The value of autonomy in self-employment," Journal of Economic Psychology, Elsevier, vol. 33(2), pages 355-365.
    19. Kameliia Petrova, 2012. "Part-time entrepreneurship and financial constraints: evidence from the Panel Study of Entrepreneurial Dynamics," Small Business Economics, Springer, vol. 39(2), pages 473-493, September.
    20. Francesco Quatraro & Marco Vivarelli, 2013. "Entry and Post-Entry Dynamics in Developing Countries," GREDEG Working Papers 2013-20, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ashish Arora & Anand Nandkumar, 2011. "Cash-Out or Flameout! Opportunity Cost and Entrepreneurial Strategy: Theory, and Evidence from the Information Security Industry," Management Science, INFORMS, vol. 57(10), pages 1844-1860, October.
    2. Enrico Santarelli & Marco Vivarelli, 2007. "Entrepreneurship and the process of firms’ entry, survival and growth," Industrial and Corporate Change, Oxford University Press, vol. 16(3), pages 455-488, June.
    3. Parker, Simon C, 2002. "Do Banks Ration Credit to New Enterprises? And Should Governments Intervene? President's Lecture Delivered at the Annual General Meeting of the Scottish Economic Society 4-5 September 2001," Scottish Journal of Political Economy, Scottish Economic Society, vol. 49(2), pages 162-195, May.
    4. Simon Parker & Mirjam van Praag, 2004. "Schooling, Capital Constraints and Entrepreneurial Performance," Tinbergen Institute Discussion Papers 04-106/3, Tinbergen Institute, revised 07 Mar 2005.
    5. Marco Vivarelli, 2013. "Is entrepreneurship necessarily good? Microeconomic evidence from developed and developing countries," Industrial and Corporate Change, Oxford University Press, vol. 22(6), pages 1453-1495, December.
    6. Colombo, Massimo G. & Delmastro, Marco & Grilli, Luca, 2004. "Entrepreneurs' human capital and the start-up size of new technology-based firms," International Journal of Industrial Organization, Elsevier, vol. 22(8-9), pages 1183-1211, November.
    7. Barbara ERMINI, 2008. "Oltre Gibrat. Capitale umano dei fondatori, endogeneita' del finanziamento pubblico e crescita delle giovani imprese hi-tech italiane," Working Papers 322, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    8. Isabel Grilo & Roy Thurik, 2008. "Determinants of entrepreneurial engagement levels in Europe and the US," Industrial and Corporate Change, Oxford University Press, vol. 17(6), pages 1113-1145, December.
    9. Luís M B Cabral & José Mata, 2003. "On the Evolution of the Firm Size Distribution: Facts and Theory," American Economic Review, American Economic Association, vol. 93(4), pages 1075-1090, September.
    10. Andrew E. Burke & Aoife Hanley, 2003. "How Do Banks Pick Safer Ventures? A Theory Relating the Importance of Risk Aversion and Collateral to Interest Margins and Credit Rationing," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 8(2), pages 13-24, Summer.
    11. André van Stel & Kashifa Suddle & Andrew Burke & Chantal Hartog, 2008. "How does Entrepreneurial Activity Affect the Supply of Business Angels?," Scales Research Reports H200813, EIM Business and Policy Research.
    12. Parker, Simon C., 2006. "Learning about the unknown: How fast do entrepreneurs adjust their beliefs?," Journal of Business Venturing, Elsevier, vol. 21(1), pages 1-26, January.
    13. Coco, G. & Pignataro, G., 2011. "Perverse cross-subsidization in the credit market," Working Papers 11/01, Department of Economics, City University London.
    14. Nobuyuki Harada & Kyoichi Kijima, 2005. "Consumption-Leisure Preference Structure: A New Explanation of the Evans-Jovanovic Results for Entrepreneurial Choice," Small Business Economics, Springer, vol. 24(2), pages 187-191, March.
    15. Massimo Colombo & Luca Grilli, 2007. "Funding Gaps? Access To Bank Loans By High-Tech Start-Ups," Small Business Economics, Springer, vol. 29(1), pages 25-46, June.
    16. Daniela Grieco, 2007. "The entrepreneurial decision: Theories, determinants and constraints," KITeS Working Papers 200, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised May 2007.
    17. André van Stel & Andrew Burke, 2008. "The Entrepreneurial Adjustment Process in Disequilibrium," Scales Research Reports H200809, EIM Business and Policy Research.
    18. Colombo, Massimo G. & Grilli, Luca, 2005. "Founders' human capital and the growth of new technology-based firms: A competence-based view," Research Policy, Elsevier, vol. 34(6), pages 795-816, August.
    19. Jose Plehn-Dujowich, 2010. "A theory of serial entrepreneurship," Small Business Economics, Springer, vol. 35(4), pages 377-398, November.
    20. Andrew Burke & Felix FitzRoy & Michael Nolan, 2008. "What makes a die-hard entrepreneur? Beyond the ‘employee or entrepreneur’ dichotomy," Small Business Economics, Springer, vol. 31(2), pages 93-115, August.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:sbusec:v:15:y:2000:i:3:p:223-232. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.